Like all other lenders, we face the risk that our customers may not repay their loans and that the realizable value of collateral may be insufficient to avoid a loss. In our business some level of credit loss is unavoidable and overall levels of credit loss can vary over time. In 2008 credit losses increased to historically high levels, as mentioned in “Recent Downturns and Disruptions” beginning on page 28.
Our ability to manage credit risks depends primarily upon our ability to assess the creditworthiness of customers and the value of collateral, including real estate. We manage credit risk by diversifying our loan portfolio and managing its granularity, and by recording and managing an allowance for expected loan losses based on the factors mentioned above and in accordance with applicable accounting rules. We also record loan charge-offs in accordance with accounting and regulatory guidelines and rules. These guidelines and rules could change and cause charge-offs to increase for reasons related or unrelated to the underlying performance of our portfolio. This risk is shared with all financial institutions. Moreover, the SEC could take accounting positions applicable to our holding company that may be inconsistent with those taken by the OCC or other regulators for the Bank. A significant challenge for us is to keep the models and approaches we use to originate and manage loans updated to take into account changes in the competitive environment, in real estate prices and other collateral values, and in the economy, among other things, based on our experience originating loans and servicing loan portfolios. Additional information concerning credit risks and our management of them is set forth under the captions “Credit Risk Management” beginning on page 37, “Foreclosure Reserves” beginning on page 54, and “Allowance for Loan Losses” beginning on page 47, of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.
We use insurance to manage a number of risks, including damage or destruction of property, legal and other liability, and certain types of credit risks. Not all such risks are insured, in any given insured situation our insurance may be inadequate to cover all loss, and many risks we face are uninsurable. For those risks that are insured, we also face the risks that the insurer may default on its obligations or that the insurer may refuse to honor them. We treat the former risk as a type of credit risk, which we manage by reviewing the insurers that we use and by striving to use more than one insurer when feasible and practical. The risk of refusal, whether due to honest disagreement or bad faith, is inherent in any contractual situation.
A portion of our retail loan portfolio involves mortgage default insurance. If a default insurer were to experience a significant credit downgrade or were to become insolvent, that could adversely affect the carrying value of loans insured by that company, which could result in an immediate increase in our loan loss provision or write-down of the carrying value of those loans on our balance sheet and, in either case, a corresponding impact on our financial results. If many default insurers were to experience downgrades or insolvency at the same time, the risk of a financial impact would be amplified and the disruption to the default insurance industry could curtail our ability to originate new loans that need such insurance, which would result in a loss of business for us.
Delinquencies and credit losses generally increase during economic downturns due to an increase in liquidity problems for customers and downward pressure on collateral values. Likewise, demand for
loans (at a given level of creditworthiness), deposit products, fixed income products, and financial services may decline during an economic downturn, and may be adversely affected by other national, regional, or local economic factors that impact demand for loans and other financial products and services. Such factors include, for example, changes in interest rates, real estate prices, or expectations concerning rates or prices. Accordingly, an economic downturn or other adverse economic change (local, regional, or national) can hurt our financial performance in the form of higher loan losses, lower loan production levels, lower deposit levels, and lower fees from transactions and services. These risks are faced by all financial services companies. Additional information illustrating these risks is given in “Recent Downturns and Disruptions” beginning on page 28.
Hedge Risks
In the normal course of our businesses, including (among others) banking, mortgage, and capital markets, we attempt to create partial or full economic hedges of various, though not all, financial risks. Our hedging activities are discussed in more detail in various places under the following captions of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report: “Risk Management,” beginning on page 29; and, “Critical Accounting Policies,” beginning on page 47. Hedging creates certain risks for us, including the risk that the other party to the hedge transaction will fail to perform (counterparty risk, which is a type of credit risk), and the risk that the hedge will not fully protect us from loss as intended (hedge failure risk). Unexpected counterparty failure or hedge failure could have a significant adverse effect on our liquidity and earnings.
Reputation Risks
Our ability to conduct and grow our businesses, and to obtain and retain customers, is highly dependent upon external perceptions of our business practices and our financial stability. Our reputation is, therefore, a key asset for us. Our reputation is affected principally by our own practices and how those practices are perceived and understood by others. Adverse perceptions regarding the practices of our competitors, or our industry as a whole, also may adversely impact our reputation. In addition, adverse perceptions relating to parties with whom we have important relationships may adversely impact our reputation. Senior management oversees processes for reputation risk monitoring, assessment, and management.
Damage to our reputation could hinder our ability to access the capital markets or otherwise impact our liquidity, could hamper our ability to attract new customers and retain existing ones, could create or aggravate regulatory difficulties, and could undermine our ability to attract and retain talented employees, among other things. Adverse impacts on our reputation, or the reputation of our industry, may also result in greater regulatory and/or legislative scrutiny, which may lead to laws or regulations that change or constrain our business or operations. Events that result in damage to our reputation also may increase our litigation risk.
Operational Risks
Our ability to conduct and grow our businesses is dependent in part upon our ability to create and maintain an appropriate operational and organizational infrastructure, manage expenses, and recruit and retain personnel with the ability to manage a complex business. Operational risk can arise in many ways, including: errors related to failed or inadequate processes; faulty or disabled computer systems; fraud, theft, physical security breaches, electronic data and related security breaches, or other criminal conduct by employees or third parties; and exposure to other external events.
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In addition, we outsource some of our operational functions to third parties. Those third parties may experience similar errors or disruptions that could adversely impact us and over which we may have limited control and, in some cases, limited ability to quickly obtain an alternate vendor. To the extent we increase our reliance on third party vendors to perform or assist operational functions, the challenge of managing the associated risks becomes more difficult.
For example, in 2008 we sold our national mortgage origination and servicing platforms. We retained significant servicing right assets, however, and we continue to originate mortgage products in our regional banking markets in and around Tennessee. Of practical necessity, we have outsourced our servicing functions to the purchaser of our platforms, and we have outsourced many key roles in the Tennessee-based mortgage origination process to a third party. Managing the operational, compliance, reputational, liability, and other risks associated with this level of outsourcing in those business areas is an ongoing challenge for us.
Failure to build and maintain the necessary operational infrastructure, or failure of our disaster preparedness plans if primary infrastructure components suffer damage, can lead to risk of loss of service to customers, legal actions, and noncompliance with applicable laws or regulatory standards. Operational risk is specifically managed through internal monitoring, measurement, and assessment by line management and oversight of processes by top management, and by maintaining systems to adhere to regulatory guidance. Additional information concerning operational risks and our management of them appears under the caption “Operational Risk Management” beginning on page 37 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.
Financing, Funding, and Liquidity Risks
Management of liquidity and related risks is a key function for our business. Additional information concerning liquidity risk management is set forth under the caption “Liquidity Management” beginning on page 32 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.
Our funding requirements currently are met principally by deposits and financing from other financial institutions. Historically we also depended upon financing from institutional investors by means of the capital markets; however, in 2008 and continuing into early 2009 we have not been able to utilize those markets economically, and we are not able to predict when we will be able to utilize them again. In general, the costs of our funding directly impact our costs of doing business and, therefore, can positively or negatively affect our financial results.
A number of factors could make such funding more difficult, more expensive, or unavailable on affordable terms, including, but not limited to, our financial results, organizational changes, adverse impacts on our reputation, changes in the activities of our business partners, disruptions in the capital markets, specific events that adversely impact the financial services industry, counterparty availability, changes affecting our loan portfolio or other assets, changes affecting our corporate and regulatory structure, interest rate fluctuations, ratings agency actions, general economic conditions, and the legal, regulatory, accounting, and tax environments governing our funding transactions. In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets, and may become or remain increasingly difficult due to economic and other factors beyond our control.
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Events affecting interest rates, markets, and other factors which adversely impact our ability or desire to access the capital markets for funding likewise may adversely affect the demand for our services in our capital markets business. As a result, disruptions in those areas may adversely impact our earnings in that business unit as well as in our regional banking unit. For instance, the disruptions in 2007 and 2008 that were related to mortgages and mortgage-backed assets significantly reduced the demand for certain of our capital markets products and services, and increased the costs and uncertainties associated with our mortgage servicing portfolio.
Rating agencies assign credit ratings to issuers and their debt. In that role, agencies directly affect the availability and cost of our funding. The Corporation and the Bank currently receive ratings from several rating entities for unsecured borrowings. A rating below investment grade typically reduces availability and increases the cost of market-based funding. A debt rating of Baa3 or higher by Moody’s Investors Service, or BBB- or higher by Standard & Poor’s and Fitch Ratings, is considered investment grade for many purposes. At the present time, all three rating agencies rate the unsecured senior debt of the Corporation and the Bank as investment grade, although we are at or near the lowest levels of that grade. To the extent that in the future we depend on institutional borrowing and the capital markets for funding and capital, we could experience reduced liquidity and increased cost of funding if our debt ratings were lowered further, particularly if lowered below investment grade. In addition, other actions by ratings agencies can create uncertainty about our ratings in the future and thus can adversely affect the cost and availability of funding, including placing us on negative outlook or on watchlist. Please note that a credit rating is not a recommendation to buy, sell, or hold securities, is subject to revision or withdrawal at any time, and should be evaluated independently of any other rating.
Regulatory laws or rules that establish minimum capital levels or define risk-weighting for capital, regulate deposit insurance, and govern related funding matters for banks could be changed in a manner that could increase our overall cost of capital and thus reduce our earnings.
Before we disposed of our national lending operations, we depended on our ability to sell or securitize first- and second-lien mortgage loans and, prior to 2007, home equity line of credit loans (which we refer to as HELOC), and we depended upon our ability to sell mortgage servicing rights. Those actions involved the sale of whole loans or of beneficial interests in loans. In 2007 the markets for loans, loan securitizations, and servicing rights experienced significant disruptions; additional information concerning that is presented in “Recent Downturns and Disruptions” beginning on page __ of this report. Going forward, our mortgage origination activity continues within our Tennessee-based regional banking footprint. Most mortgages originated are processed, sold, and serviced on a private-label basis through a third party under contract with us. However, risks pertaining to our new loan originations, our retained loans and servicing rights assets, and our former funding activities, continue.
When we sold or securitized mortgage and HELOC loans, we sometimes did so with varying degrees of recourse, which meant, in effect, that we retained some of the risk for the loan if it defaulted. Generally we sold or securitized loans with no recourse. A loan sold with recourse means the seller retains substantial or full responsibility if it defaults. For a loan we sold without recourse, we could still bear responsibility to the buyer in many cases if the loan defaulted early or was paid off early (typically within the first 90 days), or if the loan did not conform to representations we made to the buyer at the time of sale. At present, in those cases where we are responsible for a loan for representation non-conformity, usually we satisfy our obligations to the buyer by repurchase. Typically we had similar obligations for breach of representation non-conformity, or early default, if the loan was included on a non-recourse basis in a securitization transaction or if the transaction was a sale of servicing rights. Loans repurchased for representation non-conformity frequently involve default or fraud and therefore frequently result in losses to us. We managed the risk of non-conformity through origination and documentation controls and procedures, and through post-closing quality control processes. In 2008 we experienced an increase in
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loan repurchases for these reasons, particularly with respect to loans originated under so-called ‘stated income’ procedures, and that increase could continue throughout 2009. Management maintains a reserve for losses related to loan repurchases due to both non-conformity and recourse obligations. Additional information concerning these risks is set forth under the caption “Foreclosure Reserves” beginning on page 54 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.
Interest Rate and Yield Curve Risks
A significant portion of our business involves borrowing and lending money. Accordingly, changes in interest rates directly impact our revenues and expenses, and potentially could expand or compress our net interest margin. We actively manage our balance sheet to control the risks of a reduction in net interest margin brought about by ordinary fluctuations in rates. Additional information concerning those risks and our management of them appears under the caption “Interest Rate Risk Management” beginning on page 29 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.
Our mortgage servicing rights (MSR) portfolio is affected by changes in interest rates. Although we sold our mortgage servicing platform in 2008, at present we still retain substantial MSR assets. The value of MSR assets declines when the underlying loans are refinanced or otherwise paid early. Generally, when interest rates increase, the value of MSR generally increases, and when rates decline the value of MSR tends to decline. However, those general tendencies do not result in concrete outcomes in all circumstances; for example, a decrease in interest rates does not always result in a predictable increase in refinancings because other factors may blunt loan demand or curtail credit availability. Additional information concerning those risks and our management of them appears under the caption “Mortgage Servicing Rights and Other Related Retained Interests” beginning on page 49 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report.
Like all financial services companies, we face the risks associated with movements in the yield curve. The yield curve simply shows the interest rates applicable to short and long term debt. The curve is steep when short-term rates are much lower than long-term rates; it is flat when short-term rates are equal, or nearly equal, to long-term rates; and it is inverted when short-term rates exceed long-term rates. Historically, the yield curve normally is positively sloped. However, the yield curve can be relatively flat or inverted for short or even protracted periods. A flat or inverted yield curve tends to decrease net interest margin, and it tends to reduce demand for long-term debt securities, adversely impacting the revenues of our capital markets business. A prolonged inversion of the yield curve historically is so uncommon that it is difficult to predict all the effects that such a market condition is reasonably likely to create. One such effect upon us during a recent inversion period was an overall increase in the cost of hedging MSR. This cost is tied to factors including volatility in the market place, the shape of the yield curve, product duration, risk tolerance and other effects which may favorably or unfavorably impact hedging cost.
Expectations by the market regarding the direction of future interest rate movements, particularly long-term rates, can impact the demand for long-term debt which in turn can impact the revenues of our capital markets business. That risk is most apparent during times when strong expectations have not yet been reflected in market rates, or when expectations are especially weak or uncertain.
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Securities Inventories and Market Risks
Our capital markets business buys and sells various types of securities for its institutional customers. In the course of that business we hold inventory positions and are exposed to certain risks of market fluctuations. In addition, we are exposed to credit risk and interest rate risk associated with debt securities. We manage the risks of holding inventories of securities through certain policies and procedures, including hedging activities related to certain interest rate risks. Additional information concerning those risks and our management of them appears under the caption “Market Risk Management” beginning on page 36 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders, which is part of the material from that Report that has been incorporated by reference into Item 7 of Part II of this report, and in the “Credit Risks” discussion beginning on page 20 of this report.
In addition, we earn fees and other income related to our brokerage business and our management of assets for customers. Declines, disruptions, or precipitous changes in markets or market prices can adversely affect those revenue sources.
Venture Capital Risks
Venture capital investments are inherently volatile. The companies in which we have invested are much less mature, smaller, and much more unproven than a typical public company. Accordingly, those investments carry a substantial risk of loss. Venture capital investments also are inherently illiquid. Success in this business can only be assessed in the long term and depends to a very large extent upon the ability of management to find sound investment prospects, negotiate financially appropriate investment terms, and oversee each investment as the company uses the venture capital and develops. In the short term, venture capital losses are not uncommon even if the business proves to be successful in the long term. In 2008 we decided to begin winding down this business; however, due to the illiquid nature of these investments, the wind-down process could be lengthy.
Regulatory and Legal Risks
We operate in a heavily regulated industry and therefore are subject to many banking, deposit, insurance, insurance brokerage, securities brokerage and underwriting, and consumer lending regulations in addition to the rules applicable to all companies publicly traded in the U.S. securities markets and, in particular, on the New York Stock Exchange. Failure to comply with applicable regulations could result in financial, structural, and operational penalties. In addition, efforts to comply with applicable regulations may increase our costs and/or limit our ability to pursue certain business opportunities. See “Supervision and Regulation” in Item 1 of this report, beginning on page 4 above, for additional information concerning financial industry regulations. Federal and state regulations significantly limit the types of activities in which we, as a financial institution, may engage. In addition, we are subject to a wide array of other regulations that govern other aspects of how we conduct our business, such as in the areas of employment and intellectual property. Federal and state legislative and regulatory authorities occasionally consider changing these regulations or adopting new ones. Such actions could limit the amount of interest or fees we can charge, could restrict our ability to collect loans or realize on collateral, or could materially affect us in other ways. Additional federal and state consumer protection regulations also could expand the privacy protections afforded to customers of financial institutions, restricting our ability to share or receive customer information and increasing our costs. In addition, changes in accounting rules can significantly affect how we record and report assets, liabilities, revenues, expenses, and earnings.
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The Bank is required to maintain certain regulatory capital levels and ratios, as discussed under the caption “Capital Adequacy” beginning on page 6 of this report. If the Bank experiences continuing financial losses, its ability to meet those requirements could be adversely affected. Pressure to maintain capital and capital ratios during times of financial loss, especially protracted loss, may lead to actions that are adverse to our shareholders. Such actions that have already occurred include the elimination of our common cash dividend, the sale of our stock at a time when market prices are disadvantageous, and a contraction of our balance sheet (involving sales or other dispositions of assets or businesses) at a time when market values are depressed. Further such actions could occur if losses continue or worsen.
Some state authorities from time to time have challenged, and on occasion continue to challenge, the position of the OCC that it is the exclusive regulator of various aspects of national banks or their operating subsidiaries. If one or more of those challenges were successful, or if Congress or the OCC were to change the applicable banking laws or regulations, we could be impacted significantly, due, among other things, to possible increased regulatory burdens, governmental and private party actions alleging non-compliance with state law, and the expense of tracking and complying with the different laws and regulations of those states in which we do business.
In addition, some local governments or agencies recently have claimed that certain lenders in their communities have created a public nuisance, engaged in predatory or discriminatory lending, or otherwise are liable for the alleged consequences of inappropriate consumer lending, especially home mortgage lending. Mass claims of this sort, where alleged damages are measured on a statistical and/or city-wide basis, create litigation costs immediately and create a risk of significant litigation losses for those lenders which are named as defendants in them. Moreover, claims of this sort adversely alter the business climate and raise the costs for all lenders, both in the communities involved and in similar communities across the country.
In 2008 the U.S. Congress enacted the Emergency Economic Stabilization Act of 2008, sometimes known as EESA. Under authority of EESA the U.S. Department of the Treasury has initiated a Capital Purchase Program, sometimes referred to as the CPP, which has been implemented in conjunction with the U.S. banking regulators. Under the CPP, the Treasury has purchased preferred stock from approved financial institutions upon terms and conditions set by the Treasury, and in late 2008 the Treasury purchased preferred stock from us. Additional information concerning our participation in the CPP and a debt guarantee program appears in “EESA Legislation and TARP Participation” beginning on page 9 of this report. Other significant programs are expected to be implemented under EESA, and EESA may be expanded or supplemented by additional legislation. EESA and its announced programs are broad, large, and largely untested. These programs create risks that did not exist previously. Among others, those risks include: whether participation in any of these programs will expose us to intrusive, expensive, or counterproductive government mandates or restrictions; whether failure to participate in any particular program, especially if many competitors do participate, will put us in a disadvantageous position; and, whether the programs as a whole will have significant unintended or unexpected effects on the financial services industry as a whole, or upon regional financial services companies in particular.
We also face litigation risks from customers, employees, vendors, contractual parties, and other persons, either singly or in class actions, and from federal or state regulators. Litigation is an unavoidable part of doing business, and we seek to manage those risks through internal controls, personnel training, insurance, litigation management, our compliance and ethics processes, and other means. However, the commencement, outcome, and magnitude of litigation cannot be predicted or controlled with certainty.
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Holding Company Dividends
Historically the Corporation has depended upon common dividends from the Bank for cash to fund common dividends paid to the Corporation’s shareholders. However, in part because of the losses experienced by the Bank for 2007 and 2008, regulatory constraints generally will prevent the Bank from declaring and paying dividends to the Corporation in 2009 without regulatory approval. Additional information concerning those regulatory restrictions on the Bank is discussed in more detail under the heading “Liquidity Management” in the Management’s Discussion and Analysis section beginning on page 32 of our 2008 Annual Report to Shareholders, which section is incorporated herein by reference. In 2008 the Corporation discontinued paying a quarterly cash dividend to common stockholders, and began distributing a dividend payable in shares of common stock. As a CPP participant under EESA, we will not be able to reinstate a common cash dividend unless we obtain regulatory consent, among other things. Additional information concerning our participation in the CPP appears in “EESA Legislation and TARP Participation” beginning on page 9 of this report.
Accounting Estimate Risks
The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant estimates that affect the financial statements. Two of our most critical estimates are the level of the allowance for credit losses and the valuation of mortgage servicing rights. However, other estimates occasionally become highly significant, especially in volatile situations such as litigation and other loss contingency matters. Estimates are made at specific points in time; as actual events unfold, estimates are adjusted accordingly. Due to the inherent nature of these estimates, it is possible that, at some time in the future, we may significantly increase the allowance for credit losses and/or sustain credit losses that are significantly higher than the provided allowance, or we may recognize a significant provision for impairment of our mortgage servicing rights, goodwill, or other assets, or we may recognize a significant decline in the fair value of our mortgage servicing rights, or we may make some other adjustment that will differ materially from the estimates that we make today. For additional information concerning the sensitivity of these estimates, refer to “Critical Accounting Policies” beginning on page 47 of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section of our 2008 Annual Report to Shareholders.
Risks of Expense Control
Expenses and other costs directly affect our earnings. Our ability to successfully manage expenses is important to our long-term survival. Many factors can influence the amount of our expenses, as well as how quickly they grow. As our businesses change, either by expansion or contraction, additional expenses can arise from asset purchases, structural reorganization, evolving business strategies, and changing regulations, among other things. We manage expense growth and risk through a variety of means, including selectively outsourcing or multi-sourcing various functions and procurement coordination and processes.
Geographic Risks
Our capital markets business is national in scope, and capital markets is developing business in selected Asian markets. Our traditional banking business remains grounded in, and depends upon, the major Tennessee markets. As a result, to a greater degree than many of our competitors that operate nationally or in much broader regions, our banking business currently is exposed to adverse economic, regulatory, natural disaster, and other risks that might primarily impact Tennessee and neighboring states where we do business.
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Non-U.S. Operations Risks
We have two capital markets offices outside of the United States, in Hong Kong and Tokyo. Opening and operating non-U.S. offices creates a number of risks. Specific risks associated with any non-U.S. presence include: the risk that taxes, licenses, fees, prohibitions, and other barriers and constraints may be created or increased by the U.S. or other countries that would impact our ability to operate overseas profitably or at all; the risk that our assets and operations in a particular country could be nationalized in whole or part without adequate compensation; the risk that currency exchange rates could move unfavorably so as to diminish or destroy the U.S. dollar value of assets, or to enlarge the U.S. dollar value of liabilities, denominated in those currencies; and the risk that political or cultural preferences in a particular host country might become antagonistic to U.S. companies. Our ability to manage those and other risks will depend upon a number of factors, including: our ability to recognize and anticipate differences in cultural and other expectations applicable to customers, employees, regulators, and vendors and other business partners; our ability to recognize and act upon opportunities and constraints peculiar to the countries and cultures in which our offices operate; our ability to recognize and manage any exchange rate risks to which we are exposed; and our ability to anticipate the stability of or changes in the political, legal, and monetary systems of the countries in which our offices operate.
Recent Downturns and Disruptions
In 2007 and 2008 the U.S. economy in general, and the business environment for financial services companies in particular, experienced a significant downturn. Examples of some of the most significant events related to the downturn include the following:
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| ● | Residential housing values in the U.S. have fallen in nearly every market, and in some highly-populated markets values have fallen significantly. |
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| ● | The volume of residential housing transactions also has stagnated or fallen, and in some markets volume has fallen significantly. |
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| ● | Except for “conforming loans,” which are loan products conforming to standards of certain government sponsored entities, rates for some types of home mortgage products have risen sharply and some mortgage products, with new and more restrictive credit criteria, have become difficult for borrowers to obtain even at high interest rates, making it difficult or impossible for some borrowers to refinance an existing mortgage. |
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| ● | In 2007 investor demand for new-issue mortgage-backed securities fluctuated suddenly and sharply, and for some categories of mortgages it disappeared almost entirely. Although this disruption moderated somewhat in 2008, demand for new-issue non-conforming mortgage-backed securities has not rebounded and seems unlikely to do so for the foreseeable future. |
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| ● | Many companies in the U.S. in many sectors of the economy have reported financial losses or significant reductions in earnings during 2008. Banks and other companies in the financial services industry have, in general, been especially hard hit. A number of banks failed, or were acquired under circumstances of substantial financial stress, in 2008. |
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| ● | In 2008 the principal outlets for home mortgages in the U.S., the so-called government-sponsored entities (GSEs), failed financially and were, in effect, taken over by the federal government. Substantial new legislation was enacted during 2008 which changed how the GSEs operate and are regulated. Although by the end of 2008 the function of the GSEs as a buyer of so-called conforming mortgages was continuing, the current situation may be transitional and it is not clear what the status or function of the GSEs will be in the future. |
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| ● | Unemployment has risen in the latter half of 2008 as some companies have failed and others have reduced their staff. |
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| ● | Because of these factors, among others, loan defaults, foreclosures, and bankruptcies have risen significantly for individuals and businesses. |
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| ● | The U.S. Congress enacted sweeping legislation late in 2008, the EESA law mentioned above, under which the Department of the Treasury has invested substantial amounts of capital in banks, including us, and under which government agencies have substantial new powers. At December 31, 2008 EESA had not yet been fully implemented; additional programs could be adopted with unknown consequences to us. |
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| ● | Early in 2009 Congress amended the EESA law, enacted a major economic stimulus and spending law, and is considering specific additional legislation. Members of Congress have publicly spoken of still other possible legislative actions. Some of those measures could, if enacted, have a substantially larger impact on us than EESA and some could have a substantial adverse effect on our business, operations, and prospects. |
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| ● | A U.S. government agency has taken a substantial, possibly a controlling, stake in an American insurance holding company. There has been public speculation that a U.S. government agency could take a similar position in one or more large U.S. banking institutions, rather than let the institution(s) fail. The government’s indefinite control and operation of such companies would be, in effect, the ‘nationalization’ of the affected companies. In addition, the government could exercise control over, or very powerfully influence, the banking and other institutions that receive government aid without completely nationalizing them. The competitive and financial impacts upon us of such actions, whether they applied to us directly or only to certain competing institutions, cannot be predicted but could be significantly adverse to us. |
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| ● | The Federal Reserve has lowered certain short-term interest rates. This has triggered reductions in the prime lending rates charged by most U.S. banks and in some cases has adversely affected the net interest margins that banks achieve. |
Some geographic areas and business sectors, and some companies and banks, were hurt more than others, or experienced the downturn at different rates or different times. However, by the end of 2008 it is clear that the many and varied significant events of 2007 and 2008 have become a general and serious economic recession. At this time it is not known, and not possible to predict, how long or deep this downturn ultimately will be. Although these adverse events did not create new types of risks, we believe it is useful to highlight in this section some of the key impacts of those events on our business to illustrate how events beyond our control can adversely affect us.
Exit from National Mortgage and Specialty Lending Businesses
Many of the significant disruptions in 2007 and 2008 impacted our mortgage businesses substantially. We decided to exit those businesses except in our traditional Tennessee-based banking region. In August 2008 we sold our mortgage origination and servicing platforms to MetLife Bank N.A., and during the year we exited the national specialty lending businesses associated with the mortgage business.
Substantial Increase in Losses Related to Loans and Exited Businesses
Although we sold or closed our national mortgage and other lending businesses, we retain as assets many of the loans that those businesses created which we did not sell, or were not able to sell, in the normal course. Most of those loans are secured by residential or other real estate situated across the U.S. We also retain a substantial portion of the mortgage servicing rights that we previously serviced, we retain the hedge positions that we obtained to manage certain risks related to those servicing rights, and we retain the risk of liability to parties with whom we made contracts in the course of operating those businesses. These legacy assets and positions continue to impose risks on us. For example:
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| ● | The loans on our books have experienced significantly higher default and loss rates compared to recent years past. For example, due to declining home values, home loans secured on a second-lien basis in some cases have little or no collateral value to cover the loan if it defaults. Accordingly, a default on such a loan today will result in a much higher loss than would have resulted previously. It is not possible to predict when default and loss rates will stabilize. |
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| ● | The incidence of parties claiming that loans that we sold to them did not meet contractual standards has risen recently. That trend may continue as parties seek to mitigate losses they experienced while holding those loans by any means possible. |
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| ● | The incidence of counterparty loss on hedges, swaps, and other such instruments may rise as those counterparties experience financial stress or failure. |
Other trends adverse to us may emerge from these legacy assets and positions as counterparties are stressed by economic conditions, and of course some of these impacts apply to continuing businesses. Over time those losses and risks related to legacy items should diminish since there will be many fewer new loans and new contracts, but it is not possible to predict when that may occur.
Our other lending businesses remain in place, and we are constantly seeking ways to prudently expand them. We are experiencing a significant increase in default and loss rates in most of those products as well, and demand for new loans has diminished somewhat as business activity in general has become more subdued. We have made adjustments to our underwriting, credit review, and loss mitigation processes and we will continue to seek ways to manage risk and minimize loss; however, we remain in the business of lending and that business carries more risk at present than it has in recent years past. That higher level of risk could increase further, and in any case that risk is likely to continue at an elevated level at least until the economy improves to a significant extent.
We regularly review and adjust the allowance for loan losses for adequacy considering economic conditions and trends, collateral values and credit quality indicators, including past charge-off experience and levels of past due loans and nonperforming assets as well as changes in housing price appreciation and depreciation. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. That process was made significantly more difficult in 2008, as changes in business and economic conditions required us to adjust and re-adjust our methods. If the credit quality of our customer base continues to materially weaken, if the risk profile of a market, industry or group of customers continues to change materially, or if the allowance for loan losses for any reason is not adequate, our financial condition or results of operations could be adversely affected.
Decrease in Business Activities
The slowdown has reduced business activity, including activity which we finance by making loans and activity from which we earn fee revenues. Some activities have fallen off substantially, notably (for us) certain capital markets structured finance activities. All of these impacts reduce our revenues and our opportunities for new business.
Net Interest Margin Compression
Falling interest rates in the U.S. could stimulate new demand for consumer and business loans and business activity in general. However, falling rates could also compress our net interest margin, which would negatively affect our financial results. Moreover, that compression could occur whether or not our loan or other businesses experienced any significant stimulus.
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Deposit run-off risks
As mentioned under “Financing, Funding, and Liquidity Risks” beginning on page 22 above, we rely significantly upon deposits for liquidity and to fund our business operations. Generally, deposits are a relatively stable and cost-effective source of funding for banks due to many factors, including FDIC deposit insurance. Changes in deposit levels can be influenced substantially by many factors, including customer satisfaction and the interest rates offered to deposit customers. Those rates, in turn, generally reflect prevailing market conditions. During 2008, the media occasionally highlighted the risk of an extreme form of deposit run-off, sometimes referred to as a ‘run on the bank.’ More moderate levels of run-off can adversely affect banks but are substantially less dramatic and have been significantly less reported. The increased level of public concern created by the current adverse business environment, punctuated by media reports of potential or actual bank failures, increased the risk of some level of deposit run-off for all depositary institutions in 2008. That increased run-off risk applies both generally and in relation to deposits that exceed FDIC insurance coverage. Although late in 2008 FDIC insurance coverage levels were increased and actual run-off activity was mitigated, this risk nevertheless is likely to continue at some elevated level until the economic situation becomes more stable. To manage this risk we maintain cash reserves and access to other liquidity sources to accommodate normal and, to a degree, unusual withdrawal activity, and we strive to respond promptly and accurately to customer concerns that might arise.
Potential regulatory and legislative actions may adversely affect mortgage assets
The U.S. Congress and other governmental bodies have considered, and in the future may enact or adopt, new laws and regulations intended to modify the terms of outstanding consumer loans in a manner benefiting borrowers at the expense of lenders, restrict the ability of lenders to make new loans, and increase the regulatory burdens and legal risks on lenders and loan servicers. Among other things these initiatives, if enacted or adopted, could pressure or force us to reduce the interest and/or principal of loans, delay foreclosure, provide new defenses to foreclosure or otherwise impair our ability to foreclose on a defaulted mortgage loan, adversely affect our rights if a borrower declares bankruptcy, or otherwise adversely affect our rights with respect to borrowers who are in default or who qualify for such initiatives. The outcome of these initiatives is uncertain.
Recovery Act Risks
In February 2009, shortly before this Report was filed, the U.S. Congress enacted the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”). Additional information concerning the Recovery Act is provided in “EESA Legislation & TARP Participation,” particularly the last paragraph of that section on page 11 of this report. Among other things, the Recovery Act generally prohibits incentive compensation, including bonus and retention awards, for the five executives whose compensation is described in detail in our proxy statement (the “named executives”) and for the twenty employees, excluding the named executives, whose total compensation is the highest (the “Highest 20”). This restriction on incentives would cease to apply once all of the preferred stock that we sold to the Treasury is redeemed. Many interpretive questions related to the compensation provisions remain unresolved at this early time. The Recovery Act has created several new risks for us and for other institutions that sold preferred stock to the Treasury, including the following:
| | |
| | ● | Pay Substantially Less Linked to Performance. The restriction on incentive compensation in the Recovery Act may adversely affect our ability to attract, retain, and motivate our highest performing employees, and therefore may adversely affect our business. Historically, we have embraced a pay-for-performance philosophy for employees at many levels of the company. The restriction on incentives may substantially de-link pay from performance for our named executives and for those employees who are in the Highest 20 group. For those de-linked persons salary is likely to become the largest component of their compensation package. It is uncertain how a salary-dominated pay structure for those persons might affect our overall performance during the period in which the restriction applies to us. We believe that strongly linking significant components of pay to performance, particularly at the highest levels, benefits the company and its shareholders, and that the de-linking described above is likely to be disruptive to that philosophy at those levels and contrary to the company’s best interests. |
| | | |
| | ● | Risks if We Desire to Redeem the Preferred. One way to avoid or mitigate the risks outlined above would be to redeem the preferred shares we sold to the Treasury as soon as possible. However, any redemption would reduce our capital and we cannot redeem stock unless our Board and our regulators conclude it is consistent with safety, soundness, and other corporate and regulatory considerations. Those considerations could constrain our ability to redeem the preferred shares, especially in the short term, unless we create or raise an acceptable amount of replacement capital. Creating new capital typically relies upon retaining earnings. Raising new capital could be significantly dilutive to existing shareholders, especially under current market conditions, and it may not be feasible if, at the time we wish to go to market, the market is disrupted or perceives us unfavorably. |
| | | |
| | ● | Interest Rates and Other Economic Changes. The Recovery Act will result in a substantial increase in government expenditures and could substantially increase government debt. It is not clear how those events will affect interest rates or the inflation rate, among other things, but both could rise as a result of the Act. As mentioned above, our businesses are very sensitive to changes in interest rates and sudden changes in rates often have had an adverse effect on us and other financial services companies. In addition, increased interest rates tend to dampen economic activity; if rates were sustained at relatively high levels the current economic recession could be prolonged or deepened, which would adversely affect our customers and us. |
ITEM 1B
UNRESOLVED STAFF COMMENTS
None.
ITEM 2
PROPERTIES
The Corporation has no properties that it considers materially important to its financial statements.
ITEM 3
LEGAL PROCEEDINGS
The Corporation is a party to no material pending legal proceedings the nature of which are required to be disclosed pursuant to the Instructions contained in the Form of this Report.
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ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of 2008 to a vote of security holders, through the solicitation of proxies or otherwise.
SUPPLEMENTAL PART I INFORMATION
Executive Officers of the Registrant
The following is a list of executive officers of the Corporation as of January 31, 2009. The executive officers generally are elected at the April meeting of the Corporation’s Board of Directors following the annual meeting of shareholders for a term of one year and until their successors are elected and qualified. As shown in more detail below, during each of the last five fiscal years three of the executive officers were employed principally by the Corporation or its subsidiaries in an executive capacity (Messrs. Burkett, Hilliard, and Keen), three others were employed by the Corporation or its subsidiaries but did not hold an executive position during the entire period (Messrs. Gusmus, Olivier, and Tuggle), and the remainder were first employed by the Corporation during that period (Messrs. Daniel, Jordan, Losch, and Rose).
| | |
Name and Age | | Current (Year First Elected to Office) and Recent Offices and Positions |
| |
|
Charles G. Burkett
Age: 58 | | President – Tennessee and National Banking of the Corporation and the Bank (2004)
Prior to November, 2005, Mr. Burkett was President – First Tennessee Financial Services and Executive Vice President of the Corporation and the Bank. Prior to April 2004 Mr. Burkett was President – Retail Financial Services/Memphis Financial Services. |
| | |
John M. Daniel
Age: 54 | | Executive Vice President – Human Resources of the Corporation and the Bank (2008)
From September 2006 until July 2008, Mr. Daniel was Executive Vice President – Employee Services of the Corporation and the Bank. From January 2001 to September 2006, Mr. Daniel was Executive Vice President in charge of Human Resources for Regions Financial Corporation. |
| | |
Frank J. Gusmus Jr.
Age: 54 | | President – FTN Financial of the Corporation and the Bank (2008)
From August 2008 to October 2008, Mr. Gusmus served as Interim President – FTN Financial of the Corporation and Bank. Prior to that time over the past five years Mr. Gusmus held the following positions with the Bank or a subsidiary: from July 2007 to August 2008, Financial Services Manager, FTN Financial; from August 2006 to July 2007, Division Manager of Capital Markets, FTN Financial and President, FTN Financial Securities Corp.; from March 2005 to August 2006, Financial Services Manager, FTN Financial; and prior to March 2005, Chief Financial Officer, FTN Financial. |
| | |
Herbert H. Hilliard
Age: 61 | | Executive Vice President, Risk Management (2001) and Government Relations, and CRA (1988) of the Corporation and the Bank |
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| | |
D. Bryan Jordan
Age: 47 | | President and Chief Executive Officer of the Corporation and the Bank (2008)
From May 2007 until September 2008 Mr. Jordan was Executive Vice President and Chief Financial Officer of the Corporation and the Bank. From 2000 until 2002 Mr. Jordan was Comptroller, and from 2002 until April 2007 Mr. Jordan was Chief Financial Officer, of Regions Financial Corp. During that time he was also an Executive Vice President and, from November 2006, a Senior Executive Vice President of Regions. |
| | |
James F. Keen
Age: 58 | | Executive Vice President (2003), Chief Accounting Officer of the Corporation and the Bank (2008) and principal accounting officer
Mr. Keen was Corporate Controller of the Corporation from 1988 until July 2008, and of the Bank from 2001 until July 2008. In that capacity Mr. Keen was the Corporation’s principal accounting officer. |
| | |
William C. Losch III
Age: 38 | | Executive Vice President and Chief Financial Officer of the Corporation and the Bank (2009)
From 1998 to January 2009, Mr. Losch was with Wachovia Corporation. Most recently he served as Senior Vice President and Chief Financial Officer of its Retail and Small Business Banking unit from 2003 to 2005, and as Senior Vice President and Chief Financial Officer of its General Bank unit from 2006 to January 2009. |
| | |
James Gregory Olivier
Age: 46 | | Executive Vice President and Chief Credit Officer of the Corporation and the Bank (2007)
From December 2003 to June 2007, Mr. Olivier held the position of Executive Vice President – Credit Risk Manager for the Corporation and Bank. Prior to that time he served as Senior Vice President and Wholesale Credit Products Manager for Wachovia Corp. |
| | |
Michael D. Rose
Age: 66 | | Chairman of the Board of the Corporation and the Bank (2007)
Mr. Rose is the retired Chairman of Gaylord Entertainment Company, Nashville, Tennessee, a diversified hospitality and entertainment company. He served as Chairman of Gaylord Entertainment Company from April 2001 to May 2005. Mr. Rose has been director of the Corporation and Bank since 1984, and was a non-employee director until January 2007 when he was appointed Chairman of the Board. |
| | |
Charles T. Tuggle, Jr.
Age: 60 | | Executive Vice President and General Counsel of the Corporation and the Bank (2008)
From October 2003 to 2007 Mr. Tuggle was an Executive Vice President of the Bank’s FTN Financial division; during that time prior to 2007 Mr. Tuggle served as Chief Risk Officer of FTN Financial. From 1998 to October 2003 Mr. Tuggle was Chairman and Chief Executive Officer of the law firm Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. |
Declaration of Covenant
Relating To
The Bank’s Class A Non-Cumulative Perpetual Preferred Stock
On March 23, 2005, the Bank issued 300,000 shares of Class A Non-Cumulative Perpetual Preferred Stock (“Bank Preferred Stock”). That issuance was the subject of the Corporation’s Current Report on Form 8-K filed March 24, 2005. The Bank made a Declaration of Covenant dated as of July 20, 2005 (“Declaration”) in connection with the Bank Preferred Stock. The Declaration was the subject of
33
Item 8.01 of the Corporation’s Current Report on Form 8-K filed July 22, 2005. Under the Declaration, the Bank has promised to redeem shares of the Bank Preferred Stock only if and to the extent that the redemption price is equal to or less than the New Equity Amount as of the date of redemption. “New Equity Amount” means, on any date, the net proceeds to the Bank or subsidiaries of the Bank received during the six months prior to such date from new issuances of common stock of the Bank or of other securities or combinations of securities that
| | |
| (i) | qualify as Tier 1 capital of the Bank, and |
| | |
| (ii) | as reasonably determined in good faith by the Bank’s Board of Directors, (x) on a liquidation or dissolution of the Bank rankpari passu with or junior to the Bank Preferred Stock (or, if all of the Bank Preferred Stock has been redeemed, would have rankedpari passu with or junior to the Bank Preferred Stock had it remained outstanding), (y) are perpetual, with no prepayment obligation on the part of the issuer, whether at the election of holders or otherwise (although such securities may be subject to early redemption at the option of the issuer), and (z) dividends or other distributions on which are non-cumulative; |
provided,however, that the net proceeds of such securities or combinations of securities (A) if issued to any affiliate of the Bank other than the Corporation, shall not qualify as a New Equity Amount and (B) if issued to the Corporation shall qualify as a New Equity Amount only if such securities or combinations of securities have been purchased by the Corporation with the net proceeds from new issuances of common stock of the Corporation or of securities or combinations of securities by the Corporation during such six-month period that
| | |
| (i) | qualify as Tier 1 capital of the Corporation and |
| | |
| (ii) | as reasonably determined in good faith by the Corporation’s Board of Directors, (x) on a liquidation or dissolution of the issuer rank junior to all indebtedness for money borrowed and claims of other creditors of the issuer, (y) are perpetual, with no prepayment obligation on the part of the issuer, whether at the election of holders or otherwise (although such securities may be subject to early redemption at the option of the issuer), and (z) dividends or other distributions on which are non-cumulative. |
The covenants in the Declaration run in favor of persons that buy, hold, or sell debt of the Bank during the period that such debt is “Covered Debt.” The Bank’s 5.05% Subordinated Bank Notes Due January 15, 2015 (“2015 Notes”) are the initial Covered Debt. Other debt will replace the 2015 Notes as the Covered Debt under the Declaration on the earlier to occur of (x) the date two years prior to the 2015 Notes’ maturity, or (y) the date the Bank gives notice of a redemption of the 2015 Notes such that, or the date 2015 Notes are repurchased in such an amount that, the outstanding principal amount of 2015 Notes is or will become less than $100 million.
The Declaration is subject to various additional terms and conditions. The Declaration may be terminated if the holders of at least 51% by principal amount of the Covered Debt so agree, or if the Bank no longer has any long-term indebtedness rated by a nationally recognized statistical rating organization.
The summary description of the Declaration in this report is qualified in its entirety by the full terms of the Declaration, which are controlling.
34
PART II
Note on Page Number References
In this report, references to specific pages in the Corporation’s 2008 Annual Report to shareholders, or to specific pages of its consolidated financial statements or the notes thereto, relate to page numbers appearing in Exhibit 13 to this report. The Exhibit 13 page numbers do not necessarily correspond to page numbers appearing in the printed 2008 Annual Report to shareholders.
ITEM 5
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
| | |
| (a) Market for the Corporation’s Common Stock: |
The Corporation’s common stock, $0.625 par value, is listed and trades on the New York Stock Exchange, Inc. under the symbol FHN. As of December 31, 2008, there were 7,515 shareholders of record of the Corporation’s common stock. Additional information called for by this Item is incorporated herein by reference to:
| | |
| (i) | the Summary of Quarterly Financial Information Table (Table 27)(page 58), the Selected Financial and Operating Data Table (page 2), and the “Liquidity Management” subsection (beginning on page 32) of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section contained in the Corporation’s 2008 Annual Report to Shareholders, |
| | |
| (ii) | Note 18 to the Consolidated Financial Statements beginning on page 102 of the 2008 Annual Report to Shareholders, and |
| | |
| (iii) | the “Payment of Dividends” and “Transactions with Affiliates” subsections beginning on pages 5 and 6, respectively, of Item 1 of Part I of this report on Form 10-K. |
The Corporation has provided the information required by Item 201(e) of Regulation S-K on page 152 of its 2008 Annual Report to Shareholders under the caption “Total Shareholder Return Performance Graph.” That information is not “filed” with this report and is not incorporated by reference herein.
| | |
| (b) Sale of Unregistered Equity Securities: |
On November 14, 2008, the Corporation issued and sold to the U.S. Department of the Treasury (“Treasury”) 866,540 preferred shares and a ten-year warrant to purchase 12,743,235 common shares for a capital contribution of $866,540,000. The sale was in conjunction with the Treasury’s Capital Purchase Program (“CPP”) under the Emergency Economic Stabilization Act of 2008 (“EESA”). Additional information concerning the CPP is presented under “EESA Legislation & TARP Participation” beginning on page 9 of this report. There was no underwriter associated with this transaction. The sale of preferred shares and the warrant in connection with the transaction was exempt from registration pursuant, among other things, to Section 4(2) of the Securities Act of 1933, as amended. Except for such shares, during 2008 the Corporation sold no equity securities without registration under the Securities Act of 1933, as amended.
Repurchases are made in the open market or through privately negotiated transactions and are subject to market conditions, accumulation of excess equity and prudent capital management. Pursuant to
35
Board authority, the Corporation may repurchase shares from time to time for general purposes and for its stock option and other compensation plans, and will evaluate the level of capital and take action designed to generate or use capital as appropriate for the interests of the shareholders. Since becoming a participant in the U.S. Treasury’s capital purchase program, all purchase authorization is subject to substantial restrictions under that program. See “EESA Legislation & TARP Participation” beginning onpage 9 of this report for additional information concerning those restrictions. Additional information concerning repurchase activity during the final three months of 2008 is presented in Table 14, and the surrounding notes and other text, of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section appearing on pages 28 and 29 of the Corporation’s 2008 Annual Report to shareholders, which information is incorporated herein by this reference.
ITEM 6
SELECTED FINANCIAL DATA
The information called for by this Item is incorporated herein by reference to the Selected Financial and Operating Data table appearing on page 2 of the Corporation’s 2008 Annual Report to shareholders.
ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The information called for by this Item is incorporated herein by reference to the Management’s Discussion and Analysis of Results of Operations and Financial Condition section, Glossary section, and the Consolidated Historical Statements of Income and Consolidated Average Balance Sheets and Related Yields and Rates tables appearing on pages 3-62 and 148-150 of the Corporation’s 2008 Annual Report to Shareholders.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this Item is incorporated herein by reference to the “Interest Rate Risk Management” subsection of Note 26 to the Consolidated Financial Statements, and to the “Risk Management-Interest Rate Risk Management” subsection of the Management’s Discussion and Analysis of Results of Operations and Financial Condition section, both of which appear, respectively, on pages 140-141 and on pages 29-32 of the Corporation’s 2008 Annual Report to Shareholders.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is incorporated herein by reference to the Consolidated Financial Statements and the notes thereto and to the Summary of Quarterly Financial Information table appearing, respectively, on pages 66-147 and on page 58 of the Corporation’s 2008 Annual Report to Shareholders.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9A
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by the annual report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Corporation’s disclosure controls and procedures are effective to ensure that material information relating to the Corporation and the Corporation’s consolidated subsidiaries is made known to such officers by others within these entities, particularly during the period this annual report was prepared, in order to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting. The report of management required by Item 308(a) of Regulation S-K, and the attestation report required by Item 308(b) of Regulation S-K, appear at pages 63-64 of the Corporation’s 2008 Annual Report to Shareholders and are incorporated herein by this reference.
Changes in Internal Control over Financial Reporting. There have not been any changes in the Corporation’s internal control over financial reporting during the Corporation’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
ITEM 9A(T)
CONTROLS AND PROCEDURES
Not applicable.
ITEM 9B
OTHER INFORMATION
There is no information required to have been disclosed in a report on Form 8-K during the fourth quarter of 2008 that has not been reported.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item as it relates to directors and nominees for director of the Corporation, the Audit Committee of the Corporation’s Board of Directors, members of the Audit Committee, and audit committee financial expert is incorporated herein by reference to the “Corporate Governance and Board Matters” section and the “Vote Item No. 1—Election of Directors” section of the Corporation’s 2009 Proxy Statement (excluding the Audit Committee Report, the statements regarding the existence, availability, and location of the Audit Committee’s charter, and the Compensation Committee Report). The information required by this Item as it relates to executive officers of the Corporation is incorporated herein by reference to the information provided under the heading “Executive Officers of the Registrant” in the Supplemental Part I Information following Item 4 of this Report. The information required by this Item as it relates to compliance with Section 16(a) of the Securities Exchange
37
Act of 1934 is incorporated herein by reference to the “Section 16(a) Beneficial Ownership Reporting Compliance” section of the 2009 Proxy Statement.
In 2008 there were no material amendments to the procedures, described in the Corporation’s 2009 Proxy Statement, by which security holders may recommend nominees to the Corporation’s Board of Directors.
The Corporation’s Board of Directors has adopted a Code of Ethics for Senior Financial Officers that applies to the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer and also applies to all professionals serving in the financial, accounting, or audit areas of the Corporation and its subsidiaries. A copy of the Code has been filed (or incorporated by reference) as Exhibit 14 to this report and is posted on the Corporation’s current internet website (www.fhnc.com). (Click on “Investor Relations,” and then “Corporate Governance.”) A paper copy of the Code is available without charge upon written request addressed to the Corporate Secretary of the Corporation at its main office, 165 Madison Avenue, Memphis, Tennessee 38103. The Corporation intends to satisfy its disclosure obligations under Item 5.05 of Form 8-K related to Code amendments or waivers by posting such information on the Corporation’s internet website, the address for which is listed above.
ITEM 11
EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by reference to the “Compensation Committee Interlocks and Insider Participation,” “Executive Compensation,” and “Director Compensation” sections of the Corporation’s 2009 Proxy Statement.
The Corporation has provided the information required by Item 407(e)(5) of Regulation S-K in its 2009 Proxy Statement under the caption “Compensation Committee Report.” That information is not “filed” with this report and is not incorporated by reference herein.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
The following table provides information as of December 31, 2008 with respect to shares of Corporation common stock that may be issued under its existing equity compensation plans, including the following plans:
| |
● | 1990 Stock Option Plan (“1990 Plan”) |
| |
● | 1995 & 1997 Employee Stock Option Plans (“1995 Plan” and “1997 Plan,” respectively) |
| |
● | 2000 Employee Stock Option Plan (“Executive Plan”) |
| |
● | 2003 Equity Compensation Plan (“2003 Plan”) |
| |
● | 2000 Non-employee Directors’ Deferred Compensation Stock Option Plan (“Directors’ Plan”) |
| |
● | 1995 Non-employee Directors’ Deferred Compensation Stock Option Plan (“1995 Directors’ Plan”) |
| |
● | 1991, 1997, & 2002 Bank Director and Advisory Board Member Deferral Plans (“Advisory Board Plans”) |
38
Of the 15,302,812 compensatory options outstanding at December 31, 2008, approximately 34.7% were issued in connection with employee and director cash deferral elections. The Corporation received approximately $36.7 million in employee cash deferrals and $2.5 million in non-employee directors and advisory board retainer and meeting fee deferrals. The opportunity to defer portions of their compensation in exchange for options has not been offered to employees, directors or advisory board members with respect to compensation earned at any time since January 1, 2005.
The following table includes information with respect to shares subject to outstanding options granted under equity compensation plans that are no longer in effect. Footnotes (2) and (5) to the table set forth the total number of shares of Corporation common stock issuable upon the exercise of options under the expired plans as of December 31, 2008. No additional options may be granted under those expired plans.
The numbers of shares covered by stock options, as well as the option prices, reported in the following table have been adjusted proportionately to reflect the estimated economic effects of dividends paid in common stock effective October 1, 2008 and January 2, 2009. The cumulative compound adjustment factor related to those two dividends is 4.9547%. For administrative reasons outstanding options have not been formally adjusted at this time; however, administrative action has been taken which in most cases will provide the same economic and dilutive effect as an adjustment if and when affected options are exercised.
Equity Compensation Plan Information
| | | | | | | | | | | | | | | | |
| | A | | B | | C | |
| |
| |
| |
| |
Plan Category | | Number of Securities
to be Issued upon
Exercise of
Outstanding Options | | Weighted Average
Exercise Price
of Outstanding
Options | | Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Col. A) | |
|
|
|
|
|
|
|
|
Equity Compensation Plans Approved by
Shareowners (1) | | | | 5,538,156 | (2) | | | $ | 31.36 | | | | | 3,494,124 | (3) | |
|
Equity Compensation Plans Not Approved by Shareowners (4) | | | | 9,764,657 | (5) | | | $ | 31.22 | | | | | — | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | | | | 15,302,812 | | | | $ | 31.27 | | | | | 3,494,124 | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the table, column C shows the number of shares available for future award grants under the plans indicated at December 31, 2008, assuming eventual full exercise or issuance of all shares covered by awards outstanding on that date. Shares covered by outstanding options are shown in column A. A total of 1,520,408 shares are covered by outstanding awards other than options, including 1,301,392 under plans approved by shareowners and 219,016 under plans not approved by shareowners.
| |
(1) | Consists of the Executive Plan, Directors’ Plan, 1995 Directors’ Plan, 1995 Plan, 1990 Plan, and the 2003 Plan. |
| |
(2) | Includes 976,312 outstanding options issued in connection with employee and non-employee director cash deferrals of approximately $7.6 million. Also includes information for equity compensation plans that have expired. The Directors’ Plan, the 1995 Directors’ Plan, the 1995 Plan and the 1990 Plan were approved by shareholders in 2000, 1995, 1995 and 1990, respectively. The plans expired January 2007, June 1999, April 2005 and April 2000, respectively. As of December 31, 2008, a total of 1,233,069 |
39
| |
| shares of Corporation common stock were issuable upon the exercise of outstanding options under these expired plans. No additional options may be granted under these expired plans. |
| |
(3) | As of December 31, 2008, an aggregate of 3,494,124 shares were available for awards other than options under the 2003 Plan. |
| |
(4) | Consists of the 1997 Plan and the Advisory Board Plans. |
| |
(5) | Includes 4,339,104 outstanding options issued in connection with employee and advisory board cash deferrals of approximately $31.7 million. Also includes information for equity compensation plans that have expired or terminated. The 1997 Bank Director and Advisory Board Member Deferral Plan and the 1991 Bank Director and Advisory Board Member Deferral Plan expired in January 2002 and January 1997, respectively, and the 2002 Bank Director and Advisory Board Member Deferral Plan was terminated in April 2005. As of December 31, 2008, a total of 9,764,657 shares of Corporation common stock were issuable upon the exercise of outstanding options under these expired or terminated plans. No additional options may be granted under these expired or terminated plans. |
Description of Equity Compensation Plans Not Approved by Shareholders
The 1997 Plan
The 1997 Plan was adopted by the Board of Directors on April 16, 1996 and expired in April 2007. The 1997 Plan provided for granting of nonqualified stock options.
Options granted under the 1997 Plan have been granted to substantially all employees of the Corporation under our FirstShare and management option programs. The FirstShare program was a broad-based employee plan, where all employees of the Corporation (except management level employees) received a stock option award annually. Management level employees receive annual stock option awards under the management option program. The FirstShare options vest 100 percent after three years and have a term of 10 years. The management options vest 50 percent after 3 years and 50 percent after 4 years, unless a specified stock price is achieved within the 3 year period. The management options have a term of 7 years. In addition to the above, prior to 2005 certain employees could elect to defer a portion of their annual compensation into stock options under the 1997 Plan. These options vest after 6 months and have a term of 20 years. The options vest on an accelerated basis in the event of a change in control of First Horizon. All options granted under the 1997 Plan have an exercise price equal to the fair market value on the date of grant. Notwithstanding the above, under our deferred compensation stock option program, the option price per share may be less than 100 percent of the fair market value of the share at the time the option is granted if the employee has entered into an agreement with the Corporation to receive a stock option grant in lieu of compensation and the amount of compensation foregone when added to the cash exercise price of the options equals at least the fair market value of the shares on the date of grant. The deferred compensation stock option program has not been effective since January 2005.
As of December 31, 2008, options covering 9,701,515 shares of Corporation common stock were outstanding under the 1997 Plan, no shares remained available for future option grants, and options covering 17,907,808 shares had been exercised during the life of the plan. Of the options outstanding under the 1997 Plan, approximately 44% were issued in connection with employee cash deferral elections. The Corporation received approximately $31.2 million in cash deferrals to offset a portion of the exercise price. The 1997 Plan was filed as Exhibit 10(c) in the Corporation’s Form 10-Q for the quarter ended September 30, 2002, filed with the SEC, and is listed as Exhibit 10.2(d) to this Report. An amendment to the Plan is filed as Exhibit 10.2(h) to this Report.
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The Advisory Board Plans
The Advisory Board Plans were adopted by the Board of Directors in October 2001, January 1997 and January 1991. The 2002 Advisory Board Plan was terminated in 2005, and the 1997 and 1991 plans expired in 2002 and 1997, respectively.
Options granted under the Advisory Board Plans were granted only to regional and advisory board members, or to directors of certain bank affiliates, in any case who were not employees. The options were granted in lieu of the participants receiving retainers or attendance fees for bank board and advisory board meetings. The number of shares subject to grant equaled the amount of fees/retainers earned divided by one half of the fair market value of one share of common stock on the date of the option grant. The exercise price plus the amount of fees foregone equaled the fair market value of the stock on the date of the grant. The options were vested at the grant date. Those granted on or prior to January 2, 2004 have a term of 20 years, while those granted on or after July 1, 2004 have a term of 10 years.
As of December 31, 2008, options covering 63,142 shares of Corporation common stock were outstanding under the Advisory Board Plans, zero shares remained available for future option grants, and options covering 178,484 shares had been exercised during the life of the plan.
The 1997 and 1991 Advisory Board Plans were filed as Exhibits 10(t) and 10(u), respectively, to the Corporation’s 2002 Form 10-K, and are listed as Exhibits 10.1(f) and 10.1(g) to this Report. The 2002 Advisory Board Plan was filed as Exhibit 10(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, and is listed as Exhibit 10.1(h) to this Report. An amendment to these Plans is filed as Exhibit 10.2(h) to this Report.
Beneficial Ownership of Corporation Stock
The information required by this Item pursuant to Item 403(a) and (b) of Regulation S-K is incorporated herein by reference to the “Stock Ownership Information” section of the Corporation’s 2009 Proxy Statement.
Change in Control Arrangements
The Corporation is unaware of any arrangements which may result in a change in control of the Corporation.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A portion of the information called for by this Item is incorporated herein by reference to the “Transactions with Related Persons” section of the 2009 Proxy Statement. The Corporation’s independent directors and nominees are identified in the first paragraph of the “Independence and Categorical Standards” section of the 2009 Proxy Statement, which paragraph is incorporated herein by reference.
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
In July 2003, the Audit Committee of the Board of Directors adopted a policy providing for pre-approval of all audit and non-audit services to be performed by the Corporation’s registered public accounting firm that performs the audit of our consolidated financial statements that are filed with the
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SEC. Services either may be approved in advance by the Audit Committee specifically on a case-by-case basis (“specific pre-approval”) or may be approved in advance (“advance pre-approval”). Advance pre-approval requires the Committee to identify in advance the specific types of service that may be provided and the fee limits applicable to such types of service, which limits may be expressed as a limit by type of service or by category of services. Unless the type of service to be provided by the Corporation’s registered public accounting firm has received advance pre-approval under the policy and the fee for such service is within the limit pre-approved, the service will require specific pre-approval by the Committee. The terms of and fee for the annual audit engagement must receive the specific pre-approval of the Committee. “Audit,” “Audit-related,” “Tax,” and “All Other” services, as those terms are defined in the policy, have the advance pre-approval of the Committee, but only to the extent those services have been specified by the Committee and only in amounts that do not exceed the fee limits specified by the Committee. Such advance pre-approval is to be for a term of 12 months following the date of pre-approval unless the Committee specifically provides for a different term. Unless the Committee specifically determines otherwise, the aggregate amount of the fees pre-approved for All Other services for the fiscal year must not exceed seventy-five percent (75%) of the aggregate amount of the fees pre-approved for the fiscal year for Audit services, Audit-related services, and those types of Tax services that represent tax compliance or tax return preparation. The policy delegates the authority to pre-approve services to be provided by the Corporation’s registered public accounting firm, other than the annual audit engagement and any changes thereto, to the Chairperson of the Committee. The Chairperson may not, however, make a determination that causes the 75% limit described above to be exceeded. Any service pre-approved by the Chairperson will be reported to the Committee at its next regularly scheduled meeting.
Information regarding fees billed to the Corporation by KPMG LLP for the two most recent fiscal years is incorporated herein by reference to the “Vote Item No. 2” section of the 2009 Proxy Statement. No services were approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.
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PART IV
Note on Page Number References
In this report, references to specific pages in the Corporation’s 2008 Annual Report to shareholders, or to specific pages of its consolidated financial statements or the notes thereto, relate to page numbers appearing in Exhibit 13 to this report. The Exhibit 13 page numbers do not necessarily correspond to page numbers appearing in the printed 2008 Annual Report to shareholders.
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this Report:
Financial Statements:
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| Page 66* | 1. | Consolidated Statements of Condition as of December 31, 2008 and 2007. |
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| Page 67* | 2. | Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006. |
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| Page 68* | 3. | Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2008, 2007, and 2006. |
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| Page 69* | 4. | Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006. |
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| Pages 70-147* | 5. | Notes to the Consolidated Financial Statements |
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| Pages 64-65* | 6. | Reports of Independent Registered Public Accounting Firm |
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| * | The consolidated financial statements of the Corporation, the notes thereto, and the reports of independent public accountants, as listed above, are incorporated herein by reference to the indicated pages of the Corporation’s 2008 Annual Report to Shareholders. |
Financial Statement Schedules: Not applicable.
Exhibits:
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| Exhibits marked with an “*” represent a management contract or compensatory plan or arrangement required to be identified and filed as an exhibit. |
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| Exhibits marked with a “+” are filed herewith. |
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| The phrase “2008 named executive officers” refers to those executive officers whose 2008 compensation is described in detail in the Corporation’s 2009 Proxy Statement. |
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3.1 | | Amended and Restated Charter of the Corporation, incorporated herein by reference to Exhibit 3(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-04. |
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3.2 | | Amendment to Charter, incorporated herein by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed April 18, 2008. |
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3.3 | | Articles of Amendment of the Amended and Restated Charter of First Horizon National Corporation, designating Fixed Rate Cumulative Perpetual Preferred Stock, Series CPP, incorporated herein by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed November 17, 2008. |
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3.4 | | Bylaws of the Corporation, as amended and restated as of November 19, 2008, incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K filed November 24, 2008. |
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3.5 | | Warrant to Purchase Common Stock dated November 14, 2008 issued in connection with sale of preferred stock under the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K filed November 17, 2008. |
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4.1 | | Shareholder Protection Rights Agreement, dated as of October 20, 1998, between the Corporation and First Tennessee Bank National Association, as Rights Agent, including as Exhibit A the forms of Rights Certificate and Election to Exercise and as Exhibit B the form of Articles of Amendment designating Participating Preferred Stock, incorporated herein by reference to Exhibits 1, 2, and 3 to the Corporation’s Registration Statement on Form 8-A filed 10-23-98. |
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4.2 | | The Corporation and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 10 in the Corporation’s 2008 Annual Report to Shareholders. At December 31, 2008, none of such debt exceeded 10% of the total assets of the Corporation and its consolidated subsidiaries. Thus, copies of constituent instruments defining the rights of holders of such debt are not required to be included as exhibits. The Corporation agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request. |
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4.3 | | Three principal agreements related to a note program for First Tennessee Bank National Association (the “Bank”): (i) form of Distribution Agreement dated February 18, 2005 among the registrant, the Bank, and the agents therein named; (ii) form of Fiscal and Paying Agency Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association; and (iii) form of Interest Calculation Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association. All such agreements are incorporated herein by reference to Exhibit 4(c) to the Corporation’s Current Report on Form 8-K filed February 25, 2005. |
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*Deferral Plans and Related Exhibits |
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*10.1(a1) | | Directors and Executives Deferred Compensation Plan, as amended and restated, incorporated herein by reference to Exhibit 10(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-03 and form of individual agreement, incorporated herein by reference to Exhibit 10(h) to the Corporation’s 1996 Annual report on Form 10-K. |
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*10.1(a2) | | Rate Applicable to Directors and Executive Officers Under the Directors and Executives Deferred Compensation Plan, incorporated herein by reference to Exhibit 10.1(a) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. |
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*10.1(a3) | | Form of Amendment to Directors and Executives Deferred Compensation Plan, incorporated herein by reference to Exhibit 10.1(a3) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
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*10.1(b) | | Director Deferral Agreements with schedule, incorporated herein by reference to Exhibit 10(k) to the Corporation’s 1992 Annual Report on Form 10-K and Exhibit 10(j) to the Corporation’s 1995 Annual Report on Form 10-K. |
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*10.1(c) | | Form of First Horizon National Corporation Deferred Compensation Plan as Amended and Restated, incorporated herein by reference to Exhibit 10.1(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
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*10.1(d) | | Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(m) to the Corporation’s 1997 Annual Report on Form 10-K. |
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*10.1(e) | | 2000 Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(n) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04. |
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*10.1(f) | | [1991] Bank Advisory Director Deferral Plan, incorporated herein by reference to Exhibit 10(u) to the Corporation’s 2002 Annual Report on Form 10-K. |
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*10.1(g) | | [1997] Bank Director and Advisory Board Member Deferral Plan, incorporated herein by reference to Exhibit 10(t) to the Corporation’s 2002 Annual Report on Form 10-K. |
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*10.1(h) | | 2002 Bank Director and Advisory Board Member Deferral Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04. |
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*10.1(i) | | Form of First Horizon Deferred Compensation Plan as Amended and Restated, incorporated herein by reference to Exhibit 10.1(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
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*10.1(j) | | Form of FTN Financial Deferred Compensation Plan Amended and Restated Effective January 1, 2008, incorporated herein by reference to Exhibit 10.1(j) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
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*10.1(k) | | Form of Deferred Compensation Agreement used under the registrant’s 2003 Equity Compensation Plan and First Tennessee National Corporation Non-Qualified Deferred Compensation Plan, along with form of Salary, Commission, and Annual Bonus Deferral Programs Overview, form of Deferred Stock Option (“DSO”) Program Summary, and description of share receipt deferral feature, incorporated herein by reference to Exhibit 10(z) to the Corporation’s Current Report on Form 8-K dated January 3, 2005. |
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*10.1(l) | | Description of April 19, 2005 amendments to the First Horizon National Corporation Nonqualified Deferred Compensation Plan (formerly First Tennessee National Corporation Nonqualified Deferred Compensation Plan), incorporated herein by reference to Exhibit 10.1(l) to the Corporation’s Current Report on Form 8-K dated April 19, 2005. |
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*10.1(m) | | Description of changes to options granted in January 2005 to certain employees in connection with deferrals of salary earned in 2004, incorporated herein by reference to Exhibit 10.1(m) to the Corporation’s Current Report on Form 8-K dated October 19, 2005. |
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*Stock-Based Incentive Plans |
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*10.2(a) | | 1990 Stock Option Plan, as amended, and 1-21-97, 10-22-97, and 10-18-00 amendments, incorporated herein by reference to Exhibit 10(f) to the Corporation’s 1992, 1996, 1997 and 2000 Annual Reports on Form 10-K. |
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*10.2(b1) | | 1992 Restricted Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-99. |
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*10.2(b2) | | Amendment to 1992 Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit 10.2(b2) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
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*10.2(c) | | 1995 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2(c) to the Corporation’s Current Report on Form 8-K dated July 19, 2005. |
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*10.2(d) | | 1997 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 9-30-02. |
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*10.2(e) | | 2000 Employee Stock Option Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed April 28, 2008. |
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*10.2(f) | | 2003 Equity Compensation Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed April 28, 2008. |
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*10.2(g) | | Amendments to certain Stock-Based and Incentive Plans of First Horizon National Corporation, amending the 2003 Equity Compensation Plan, the 2002 Management Incentive Plan, and the Non-Employee Directors’ Deferred Compensation Stock Option Plan, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed July 17, 2008. |
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*10.2(h)+ | | Amended and Restated Amendments to Certain Stock-Based Plans of First Horizon National Corporation Related to Capital Adjustments, approved December 15, 2008. |
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*TARSAP/PARSAP Restricted Stock Agreements and Related Documents |
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*10.3(a) | | Form of accelerated (performance based) Restricted Stock Agreement under the 1992 Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit 10.3(a) to the Corporation’s 2004 Annual Report on Form 10-K. |
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*10.3(b) | | Form of accelerated (performance based) Restricted Stock Agreement under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.3(b) to the Corporation’s 2004 Annual Report on Form 10-K. |
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*10.3(c) | | Description of performance criteria related to TARSAP/PARSAP awards granted prior to 2005, incorporated herein by reference to Exhibit 10.3(c) to the Corporation’s 2004 Annual Report on Form 10-K. |
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*10.3(d) | | Form of 2005 PARSAP Agreement (for the CEO), incorporated herein by reference to Exhibit 10.3(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
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*10.3(e) | | Form of 2005 PARSAP Agreement (for executive officers other than the CEO), incorporated herein by reference to Exhibit 10.3(e) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
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*10.3(f) | | Description of performance criteria related to 2005 PARSAP Agreement, incorporated herein by reference to Exhibit 10.3(f) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
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*Performance-Based Incentive Award Documents |
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*10.4(a) | | Form of Notice of 2006 LTIP award under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. |
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*10.4(b) | | Form of Notice of 2006 LTIP award, used for mid-year awards, under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(e) to the Corporation’s Current Report on Form 8-K dated October 18, 2006. |
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*10.4(c) | | Form of 2006 Promotional Performance Share Unit grant notice to Mr. Baker, incorporated herein by reference to Exhibit 10.5(i) of the Corporation’s Current Report on Form 8-K dated February 14, 2006. |
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*10.4(d) | | Form of Performance Stock Units Grant Notice [2007], incorporated herein by reference to Exhibit 10.4(f) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
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*10.4(e1) | | Form of Performance Restricted Stock award grant notice under 2003 Equity Compensation Plan [2008], incorporated herein by reference to Exhibit 10.5(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008. |
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*10.4(e2)+ | | Text of Notice Announcing Modification of Performance Goal Calculation Method Related to 2008 Executive Awards of Performance Restricted Stock. |
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*Other Stock-Based Incentive Plan Agreements and Related Documents |
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*10.5(a) | | Form of Restricted Stock Agreement for Non-Employee Director used under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10(aa) to the Corporation’s Current Report on Form 8-K dated January 18, 2005. |
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*10.5(b) | | April 2003 Restricted Stock Agreement under the 2003 Equity Compensation Plan with J. Kenneth Glass, incorporated herein by reference to Exhibit 10.5(b) to the Corporation’s 2004 Annual Report on Form 10-K. |
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*10.5(c) | | Form of Agreement To Defer Receipt Of Shares Following Option Exercise, incorporated herein by reference to Exhibit 10.5(c) to the Corporation’s 2004 Annual Report on Form 10-K. |
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*10.5(d) | | Form of Agreement to Exchange Shares for RSUs and Defer Receipt of Shares [relating to Restricted Stock], incorporated herein by reference to Exhibit 10.5(d) to the Corporation’s 2004 Annual Report on Form 10-K. |
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*10.5(e) | | Form of Stock Option Grant Notice, incorporated herein by reference to Exhibit 10.5(e) to the Corporation’s 2004 Annual Report on Form 10-K. |
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*10.5(f) | | Form of Stock Option Reload Grant Notification, incorporated herein by reference to Exhibit 10.5(f) to the Corporation’s 2004 Annual Report on Form 10-K. |
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*10.5(g) | | Form of Stock Option Grant Notice (used for executive officers during 2005), incorporated herein by reference to Exhibit 10.5(g) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
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*10.5(h) | | Form of Restricted Stock Grant Notice (used during 2005), incorporated herein by reference to Exhibit 10.5(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
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*10.5(i) | | Form of Management Stock Option Grant Notice (used for executive officers during 2006), incorporated herein by reference to Exhibit 10.5(j) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. |
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*10.5(j) | | Form of Management Restricted Stock Grant Notice (used for executive officers during 2006), incorporated herein by reference to Exhibit 10.5(k) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. |
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*10.5(k)+ | | Sections of Director Policy pertaining to compensation and retirement. |
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*10.5(l) | | First Tennessee Stock Option Enhancement Program, incorporated herein by reference to Exhibit 10.5(o) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006. |
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*10.5(m) | | Form of Management Stock Option Grant Notice [2007], incorporated herein by reference to Exhibit 10.5(p) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
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*10.5(n) | | Form of stock option grant notice used for special grant to Mr. Jordan in lieu of bonus, incorporated herein by reference to Exhibit 10.5(r) to the Corporation’s Current Report on Form 8-K filed February 29, 2008. |
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*10.5(o) | | Form of Retention Restricted Stock award grant notice under 2003 Equity Compensation Plan [2008], incorporated herein by reference to Exhibit 10.5(t) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008. |
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*Management Cash Incentive Plan Documents |
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*10.6(a) | | 2002 Management Incentive Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K filed April 28, 2008. |
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*10.6(b1) | | Capital Markets Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.6(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. Certain information in this exhibit has been omitted pursuant to a request for confidential treatment. The omitted information has been submitted separately to the Securities and Exchange Commission. In accordance with the Corporation’s bylaws, the Corporation’s Board Compensation Committee’s charter, and action of that Committee on July 18, 2006, the annual incentive bonus to the head of the Capital Markets unit is subject to final review and approval by the Chief Executive Officer and the Compensation Committee. |
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*10.6(b2) | | Amendment to Capital Markets Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.6(c2) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
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*10.6(c) | | Firstpower Annual Bonus Plan, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed August 21, 2008. |
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Other Material Contract Exhibits relating to Employment, Retirement, Severance, or Separation |
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*10.7(a1) | | February 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a2) to the Corporation’s Current Report on Form 8-K dated February 20, 2007. |
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*10.7(a2) | | Form of Amendment to February 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a4) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
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*10.7(b) | | October 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a5) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
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*10.7(c) | | Form of Change in Control Severance Agreement offered to executive officers on or after November 14, 2008, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed November 24, 2008. |
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*10.7(d) | | Form of Pension Restoration Plan (amended and restated as of January 1, 2008), incorporated herein by reference to Exhibit 10.7(e) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
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*10.7(e) | | Conformed copy of J. Kenneth Glass Retirement Agreement, incorporated by reference to Exhibit 10.7(l) to the Corporation’s Current Report on Form 8-K dated March 21, 2007. |
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*10.7(f) | | Conformed copy of offer letter concerning employment of D. Bryan Jordan, incorporated by reference to Exhibit 10.7(m) to the Corporation’s Current Report on Form 8-K dated April 13, 2007. |
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*10.7(g) | | Form of Elbert L. Thomas, Jr. Retirement Agreement, incorporated herein by reference to Exhibit 10.7(o) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007. |
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*10.7(h) | | Conformed copy of Retirement Agreement with John P. O’Connor, Jr., incorporated herein by reference to Exhibit 10.7(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
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*10.7(i) | | Conformed copy of Retirement Agreement with Gerald L. Baker, incorporated herein by reference to Exhibit 10.7(t) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. |
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*10.7(j) | | Conformed copy of Separation Agreement with Sarah L. Meyerrose dated August 12, 2008, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed August 14, 2008. |
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*10.7(k) | | Conformed copy of offer letter concerning employment of William C. Losch, III (principal financial officer), incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed November 24, 2008. |
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*10.7(l)+ | | Conformed copy of Retention Agreement with Frank J. Gusmus Jr. dated January 8, 2009 |
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Other Material Contract Exhibits related to Management or Directors |
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*10.8(a) | | Survivor Benefits Plan, as amended and restated July 18, 2006, incorporated herein by reference to Exhibit 10.8 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. |
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*10.8(b) | | Description of other compensation and benefit arrangements for the Corporation’s non-employee directors, incorporated herein by reference to Exhibit 10.7(c) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006. |
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*10.8(c) | | Long-Term Disability Program, incorporated herein by reference to Exhibit 10(v) to the Corporation’s 2003 Annual Report on Form 10-K. |
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*10.8(d1) | | 2004 Form of Indemnity Agreement between the Corporation and its directors and executive officers, incorporated herein by reference to Exhibit 10.13 to the Corporation’s 2004 Annual Report on Form 10-K. |
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*10.8(d2) | | Form of amendment to 2004 form of Indemnity Agreement with directors and executive officers, incorporated herein by reference to Exhibit 10.4 to the Corporation’s Current Report on Form 8-K filed April 28, 2008. |
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*10.8(e) | | Form of Indemnity Agreement with directors and executive officers (April 2008 revision), incorporated herein by reference to Exhibit 10.5 to the Corporation’s Current Report on Form 8-K filed April 28, 2008. |
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*10.8(f)+ | | Description of Certain Benefits Available to Executive Officers. |
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*10.8(g) | | Form of Split Dollar Life Insurance Agreement [Thomas], incorporated herein by reference to Exhibit 10.7(p) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007. |
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*10.8(h) | | Form of Split Dollar Life Insurance Agreement [O’Connor], incorporated herein by reference to Exhibit 10.7(q) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007. |
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*10.8(i) | | Description of salaries of the 2007 named executive officers, incorporated herein by reference to Exhibit 10.7(r) to the Corporation’s Current Report on Form 8-K filed February 29, 2008. |
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*10.8(j) | | 2008 annualized salary rate of D. Bryan Jordan, changed effective September 1, 2008, incorporated herein by reference to Exhibit 10.7(x) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. |
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*10.8(k) | | 2008 annualized salary rate of Thomas C. Adams, Jr., incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed August 21, 2008. |
| | |
*10.8(l)+ | | Annualized salary rates in effect at January 1, 2009 of Charles T. Tuggle, Jr. and Frank J. Gusmus Jr. |
| | |
*10.8(m) | | Description of special bonus paid to Elbert L. Thomas, Jr., incorporated herein by reference to Exhibit 10.7(w) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. |
| | |
*10.8(n) | | Form of letter agreement with executive officers related to compensation, in conformity with the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed November 17, 2008. |
| | |
*10.8(o) | | Form of waiver required of initial senior executive officers in connection with sale of preferred stock under the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed November 17, 2008. |
| | |
Other Material Contract Exhibits |
| | |
10.9 | | Form of Settlement Agreement related to McLean litigation, incorporated by reference to Exhibit 10.10 to the registrant’s Current Report on Form 8-K dated February 15, 2007. |
| | |
10.10 | | Conformed copy of Asset Purchase Agreement dated June 3, 2008 related to the sale of certain mortgage business operations and assets, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008. |
| | |
10.11 | | Conformed copy of Mortgage Loan Subservicing Agreement dated June 3, 2008 related to the subservicing of certain mortgage loans, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008. |
| | |
10.12 | | Conformed copy of Servicing Rights Purchase and Sale Agreement dated June 3, 2008 related to the sale of certain mortgage servicing rights assets, incorporated herein by |
51
| | |
| | reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008. |
| | |
10.13 | | Letter agreement dated November 14, 2008 with the U.S. Department of the Treasury, including Securities Purchase Agreement – Standard Terms, incorporated herein by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K filed November 17, 2008. |
| | |
13+ | | Pages 2 through 150 of the First Horizon National Corporation 2008 Annual Report to Shareholders, a copy of which is furnished for the information of the Securities and Exchange Commission. Portions of the Annual Report not incorporated herein by reference are deemed not to be “filed” with the Commission. |
| | |
14+ | | Code of Ethics for Senior Financial Officers. |
| | |
21+ | | Subsidiaries of the Corporation. |
| | |
23+ | | Accountant’s Consents. |
| | |
24+ | | Power of Attorney. |
| | |
31(a)+ | | Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002) |
| | |
31(b)+ | | Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002) |
| | |
32(a)+ | | 18 USC 1350 Certifications of CEO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002) |
| | |
32(b)+ | | 18 USC 1350 Certifications of CFO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002) |
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| | FIRST HORIZON NATIONAL CORPORATION |
| | | |
Date: February 26, 2009 | | By: | /s/ William C. Losch III |
| | |
|
| | | William C. Losch III, Executive Vice |
| | | President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | |
Signature | | Title | | Date |
| |
| |
|
D. Bryan Jordan * | | President, Chief Executive Officer, | | February 26, 2009 |
| | and Director (principal executive officer) | | |
D. Bryan Jordan | | | | |
| | | | |
William C. Losch III* | | Executive Vice President and Chief | | February 26, 2009 |
| | Financial Officer (principal financial officer) | | |
William C. Losch III | | | | |
| | | | |
James F. Keen* | | Executive Vice President and | | February 26, 2009 |
| | Chief Accounting Officer (principal | | |
James F. Keen | | accounting officer) | | |
| | | | |
Michael D. Rose* | | Chairman of the Board and Director | | February 26, 2009 |
| | | | |
Michael D. Rose | | | | |
| | | | |
Robert B. Carter* | | Director | | February 26, 2009 |
| | | | |
Robert B. Carter | | | | |
| | | | |
Simon F. Cooper* | | Director | | February 26, 2009 |
| | | | |
Simon F. Cooper | | | | |
| | | | |
Mark A. Emkes* | | Director | | February 26, 2009 |
| | | | |
Mark A. Emkes | | | | |
| | | | |
James A. Haslam, III* | | Director | | February 26, 2009 |
| | | | |
James A. Haslam, III | | | | |
| | | | |
R. Brad Martin* | | Director | | February 26, 2009 |
| | | | |
R. Brad Martin | | | | |
| | | | |
Vicki R. Palmer * | | Director | | February 26, 2009 |
| | | | |
Vicki R. Palmer | | | | |
| | | | |
Colin V. Reed* | | Director | | February 26, 2009 |
| | | | |
Colin V. Reed | | | | |
53
| | | | |
William B. Sansom* | | Director | | February 26, 2009 |
| | | | |
William B. Sansom | | | | |
| | | | |
Luke Yancy III* | | Director | | February 26, 2009 |
| | | | |
Luke Yancy III | | | | |
| | | |
| *By: | /s/ Clyde A. Billings, Jr. | February 26, 2009 |
| |
| |
| | Clyde A. Billings, Jr. | |
| | As Attorney-in-Fact | |
54
EXHIBIT INDEX
| |
| Exhibits marked with an “*” represent a management contract or compensatory plan or arrangement required to be identified and filed as an exhibit. |
| |
| Exhibits marked with a “+” are filed herewith. |
| |
| The phrase “2008 named executive officers” refers to those executive officers whose 2008 compensation is described in detail in the Corporation’s 2009 Proxy Statement. |
| | |
3.1 | | Amended and Restated Charter of the Corporation, incorporated herein by reference to Exhibit 3(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-04. |
| | |
3.2 | | Amendment to Charter, incorporated herein by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed April 18, 2008. |
| | |
3.3 | | Articles of Amendment of the Amended and Restated Charter of First Horizon National Corporation, designating Fixed Rate Cumulative Perpetual Preferred Stock, Series CPP, incorporated herein by reference to Exhibit 3.1 to the Corporation’s Current Report on Form 8-K filed November 17, 2008. |
| | |
3.4 | | Bylaws of the Corporation, as amended and restated as of November 19, 2008, incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K filed November 24, 2008. |
| | |
3.5 | | Warrant to Purchase Common Stock dated November 14, 2008 issued in connection with sale of preferred stock under the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 3.2 to the Corporation’s Current Report on Form 8-K filed November 17, 2008. |
| | |
4.1 | | Shareholder Protection Rights Agreement, dated as of October 20, 1998, between the Corporation and First Tennessee Bank National Association, as Rights Agent, including as Exhibit A the forms of Rights Certificate and Election to Exercise and as Exhibit B the form of Articles of Amendment designating Participating Preferred Stock, incorporated herein by reference to Exhibits 1, 2, and 3 to the Corporation’s Registration Statement on Form 8-A filed 10-23-98. |
| | |
4.2 | | The Corporation and certain of its consolidated subsidiaries have outstanding certain long-term debt. See Note 10 in the Corporation’s 2008 Annual Report to Shareholders. At December 31, 2008, none of such debt exceeded 10% of the total assets of the Corporation and its consolidated subsidiaries. Thus, copies of constituent instruments defining the rights of holders of such debt are not required to be included as exhibits. The Corporation agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request. |
| | |
4.3 | | Three principal agreements related to a note program for First Tennessee Bank National Association (the “Bank”): (i) form of Distribution Agreement dated February 18, 2005 among the registrant, the Bank, and the agents therein named; (ii) form of Fiscal and Paying Agency Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association; and (iii) form of Interest Calculation Agreement dated as of February 18, 2005 between the Bank and JPMorgan Chase Bank, National Association. All such agreements are incorporated herein by reference to Exhibit 4(c) to the Corporation’s Current |
55
| | |
| | Report on Form 8-K filed February 25, 2005. |
| | |
*Deferral Plans and Related Exhibits |
| | |
*10.1(a1) | | Directors and Executives Deferred Compensation Plan, as amended and restated, incorporated herein by reference to Exhibit 10(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-03 and form of individual agreement, incorporated herein by reference to Exhibit 10(h) to the Corporation’s 1996 Annual report on Form 10-K. |
| | |
*10.1(a2) | | Rate Applicable to Directors and Executive Officers Under the Directors and Executives Deferred Compensation Plan, incorporated herein by reference to Exhibit 10.1(a) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. |
| | |
*10.1(a3) | | Form of Amendment to Directors and Executives Deferred Compensation Plan, incorporated herein by reference to Exhibit 10.1(a3) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
| | |
*10.1(b) | | Director Deferral Agreements with schedule, incorporated herein by reference to Exhibit 10(k) to the Corporation’s 1992 Annual Report on Form 10-K and Exhibit 10(j) to the Corporation’s 1995 Annual Report on Form 10-K. |
| | |
*10.1(c) | | Form of First Horizon National Corporation Deferred Compensation Plan as Amended and Restated, incorporated herein by reference to Exhibit 10.1(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
| | |
*10.1(d) | | Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(m) to the Corporation’s 1997 Annual Report on Form 10-K. |
| | |
*10.1(e) | | 2000 Non-Employee Directors’ Deferred Compensation Stock Option Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(n) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04. |
| | |
*10.1(f) | | [1991] Bank Advisory Director Deferral Plan, incorporated herein by reference to Exhibit 10(u) to the Corporation’s 2002 Annual Report on Form 10-K. |
| | |
*10.1(g) | | [1997] Bank Director and Advisory Board Member Deferral Plan, incorporated herein by reference to Exhibit 10(t) to the Corporation’s 2002 Annual Report on Form 10-K. |
| | |
*10.1(h) | | 2002 Bank Director and Advisory Board Member Deferral Plan, as amended and restated 4-20-04, incorporated herein by reference to Exhibit 10(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 6-30-04. |
| | |
*10.1(i) | | Form of First Horizon Deferred Compensation Plan as Amended and Restated, incorporated herein by reference to Exhibit 10.1(i) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
| | |
*10.1(j) | | Form of FTN Financial Deferred Compensation Plan Amended and Restated Effective January 1, 2008, incorporated herein by reference to Exhibit 10.1(j) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
56
| | |
*10.1(k) | | Form of Deferred Compensation Agreement used under the registrant’s 2003 Equity Compensation Plan and First Tennessee National Corporation Non-Qualified Deferred Compensation Plan, along with form of Salary, Commission, and Annual Bonus Deferral Programs Overview, form of Deferred Stock Option (“DSO”) Program Summary, and description of share receipt deferral feature, incorporated herein by reference to Exhibit 10(z) to the Corporation’s Current Report on Form 8-K dated January 3, 2005. |
| | |
*10.1(l) | | Description of April 19, 2005 amendments to the First Horizon National Corporation Nonqualified Deferred Compensation Plan (formerly First Tennessee National Corporation Nonqualified Deferred Compensation Plan), incorporated herein by reference to Exhibit 10.1(l) to the Corporation’s Current Report on Form 8-K dated April 19, 2005. |
| | |
*10.1(m) | | Description of changes to options granted in January 2005 to certain employees in connection with deferrals of salary earned in 2004, incorporated herein by reference to Exhibit 10.1(m) to the Corporation’s Current Report on Form 8-K dated October 19, 2005. |
| | |
*Stock-Based Incentive Plans |
| | |
*10.2(a) | | 1990 Stock Option Plan, as amended, and 1-21-97, 10-22-97, and 10-18-00 amendments, incorporated herein by reference to Exhibit 10(f) to the Corporation’s 1992, 1996, 1997 and 2000 Annual Reports on Form 10-K. |
| | |
*10.2(b1) | | 1992 Restricted Stock Incentive Plan, as amended and restated, incorporated herein by reference to Exhibit 10(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 3-31-99. |
| | |
*10.2(b2) | | Amendment to 1992 Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit 10.2(b2) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
| | |
*10.2(c) | | 1995 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10.2(c) to the Corporation’s Current Report on Form 8-K dated July 19, 2005. |
| | |
*10.2(d) | | 1997 Employee Stock Option Plan, as amended and restated, incorporated herein by reference to Exhibit 10(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended 9-30-02. |
| | |
*10.2(e) | | 2000 Employee Stock Option Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed April 28, 2008. |
| | |
*10.2(f) | | 2003 Equity Compensation Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed April 28, 2008. |
| | |
*10.2(g) | | Amendments to certain Stock-Based and Incentive Plans of First Horizon National Corporation, amending the 2003 Equity Compensation Plan, the 2002 Management Incentive Plan, and the Non-Employee Directors’ Deferred Compensation Stock Option Plan, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed July 17, 2008. |
57
| | |
*10.2(h)+ | | Amended and Restated Amendments to Certain Stock-Based Plans of First Horizon National Corporation Related to Capital Adjustments, approved December 15, 2008. |
| | |
*TARSAP/PARSAP Restricted Stock Agreements and Related Documents |
| | |
*10.3(a) | | Form of accelerated (performance based) Restricted Stock Agreement under the 1992 Restricted Stock Incentive Plan, incorporated herein by reference to Exhibit 10.3(a) to the Corporation’s 2004 Annual Report on Form 10-K. |
| | |
*10.3(b) | | Form of accelerated (performance based) Restricted Stock Agreement under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.3(b) to the Corporation’s 2004 Annual Report on Form 10-K. |
| | |
*10.3(c) | | Description of performance criteria related to TARSAP/PARSAP awards granted prior to 2005, incorporated herein by reference to Exhibit 10.3(c) to the Corporation’s 2004 Annual Report on Form 10-K. |
| | |
*10.3(d) | | Form of 2005 PARSAP Agreement (for the CEO), incorporated herein by reference to Exhibit 10.3(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
| | |
*10.3(e) | | Form of 2005 PARSAP Agreement (for executive officers other than the CEO), incorporated herein by reference to Exhibit 10.3(e) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
| | |
*10.3(f) | | Description of performance criteria related to 2005 PARSAP Agreement, incorporated herein by reference to Exhibit 10.3(f) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
| | |
*Performance-Based Incentive Award Documents |
| | |
*10.4(a) | | Form of Notice of 2006 LTIP award under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(d) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. |
| | |
*10.4(b) | | Form of Notice of 2006 LTIP award, used for mid-year awards, under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10.4(e) to the Corporation’s Current Report on Form 8-K dated October 18, 2006. |
| | |
*10.4(c) | | Form of 2006 Promotional Performance Share Unit grant notice to Mr. Baker, incorporated herein by reference to Exhibit 10.5(i) of the Corporation’s Current Report on Form 8-K dated February 14, 2006. |
| | |
*10.4(d) | | Form of Performance Stock Units Grant Notice [2007], incorporated herein by reference to Exhibit 10.4(f) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
58
| | |
*10.4(e1) | | Form of Performance Restricted Stock award grant notice under 2003 Equity Compensation Plan [2008], incorporated herein by reference to Exhibit 10.5(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008. |
| | |
*10.4(e2)+ | | Text of Notice Announcing Modification of Performance Goal Calculation Method Related to 2008 Executive Awards of Performance Restricted Stock. |
| | |
*Other Stock-Based Incentive Plan Agreements and Related Documents |
| | |
*10.5(a) | | Form of Restricted Stock Agreement for Non-Employee Director used under the 2003 Equity Compensation Plan, incorporated herein by reference to Exhibit 10(aa) to the Corporation’s Current Report on Form 8-K dated January 18, 2005. |
| | |
*10.5(b) | | April 2003 Restricted Stock Agreement under the 2003 Equity Compensation Plan with J. Kenneth Glass, incorporated herein by reference to Exhibit 10.5(b) to the Corporation’s 2004 Annual Report on Form 10-K. |
| | |
*10.5(c) | | Form of Agreement To Defer Receipt Of Shares Following Option Exercise, incorporated herein by reference to Exhibit 10.5(c) to the Corporation’s 2004 Annual Report on Form 10-K. |
| | |
*10.5(d) | | Form of Agreement to Exchange Shares for RSUs and Defer Receipt of Shares [relating to Restricted Stock], incorporated herein by reference to Exhibit 10.5(d) to the Corporation’s 2004 Annual Report on Form 10-K. |
| | |
*10.5(e) | | Form of Stock Option Grant Notice, incorporated herein by reference to Exhibit 10.5(e) to the Corporation’s 2004 Annual Report on Form 10-K. |
| | |
*10.5(f) | | Form of Stock Option Reload Grant Notification, incorporated herein by reference to Exhibit 10.5(f) to the Corporation’s 2004 Annual Report on Form 10-K. |
| | |
*10.5(g) | | Form of Stock Option Grant Notice (used for executive officers during 2005), incorporated herein by reference to Exhibit 10.5(g) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
| | |
*10.5(h) | | Form of Restricted Stock Grant Notice (used during 2005), incorporated herein by reference to Exhibit 10.5(h) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. |
| | |
*10.5(i) | | Form of Management Stock Option Grant Notice (used for executive officers during 2006), incorporated herein by reference to Exhibit 10.5(j) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. |
| | |
*10.5(j) | | Form of Management Restricted Stock Grant Notice (used for executive officers during 2006), incorporated herein by reference to Exhibit 10.5(k) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. |
| | |
*10.5(k)+ | | Sections of Director Policy pertaining to compensation and retirement. |
59
| | |
*10.5(l) | | First Tennessee Stock Option Enhancement Program, incorporated herein by reference to Exhibit 10.5(o) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006. |
| | |
*10.5(m) | | Form of Management Stock Option Grant Notice [2007], incorporated herein by reference to Exhibit 10.5(p) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
| | |
*10.5(n) | | Form of stock option grant notice used for special grant to Mr. Jordan in lieu of bonus, incorporated herein by reference to Exhibit 10.5(r) to the Corporation’s Current Report on Form 8-K filed February 29, 2008. |
| | |
*10.5(o) | | Form of Retention Restricted Stock award grant notice under 2003 Equity Compensation Plan [2008], incorporated herein by reference to Exhibit 10.5(t) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008. |
| | |
*Management Cash Incentive Plan Documents |
| | |
*10.6(a) | | 2002 Management Incentive Plan, as amended and restated April 14, 2008, incorporated herein by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K filed April 28, 2008. |
| | |
*10.6(b1) | | Capital Markets Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.6(c) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. Certain information in this exhibit has been omitted pursuant to a request for confidential treatment. The omitted information has been submitted separately to the Securities and Exchange Commission. In accordance with the Corporation’s bylaws, the Corporation’s Board Compensation Committee’s charter, and action of that Committee on July 18, 2006, the annual incentive bonus to the head of the Capital Markets unit is subject to final review and approval by the Chief Executive Officer and the Compensation Committee. |
| | |
*10.6(b2) | | Amendment to Capital Markets Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.6(c2) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
| | |
*10.6(c) | | Firstpower Annual Bonus Plan, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed August 21, 2008. |
| | |
Other Material Contract Exhibits relating to Employment, Retirement, Severance, or Separation |
| | |
*10.7(a1) | | February 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a2) to the Corporation’s Current Report on Form 8-K dated February 20, 2007. |
| | |
*10.7(a2) | | Form of Amendment to February 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a4) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
60
| | |
*10.7(b) | | October 2007 form of change-in-control severance agreement between the Corporation and its executive officers, incorporated herein by reference to Exhibit 10.7(a5) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
| | |
*10.7(c) | | Form of Change in Control Severance Agreement offered to executive officers on or after November 14, 2008, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed November 24, 2008. |
| | |
*10.7(d) | | Form of Pension Restoration Plan (amended and restated as of January 1, 2008), incorporated herein by reference to Exhibit 10.7(e) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
| | |
*10.7(e) | | Conformed copy of J. Kenneth Glass Retirement Agreement, incorporated by reference to Exhibit 10.7(l) to the Corporation’s Current Report on Form 8-K dated March 21, 2007. |
| | |
*10.7(f) | | Conformed copy of offer letter concerning employment of D. Bryan Jordan, incorporated by reference to Exhibit 10.7(m) to the Corporation’s Current Report on Form 8-K dated April 13, 2007. |
| | |
*10.7(g) | | Form of Elbert L. Thomas, Jr. Retirement Agreement, incorporated herein by reference to Exhibit 10.7(o) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007. |
| | |
*10.7(h) | | Conformed copy of Retirement Agreement with John P. O’Connor, Jr., incorporated herein by reference to Exhibit 10.7(s) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
| | |
*10.7(i) | | Conformed copy of Retirement Agreement with Gerald L. Baker, incorporated herein by reference to Exhibit 10.7(t) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. |
| | |
*10.7(j) | | Conformed copy of Separation Agreement with Sarah L. Meyerrose dated August 12, 2008, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed August 14, 2008. |
| | |
*10.7(k) | | Conformed copy of offer letter concerning employment of William C. Losch, III (principal financial officer), incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed November 24, 2008. |
| | |
*10.7(l)+ | | Conformed copy of Retention Agreement with Frank J. Gusmus Jr. dated January 8, 2009 |
| | |
Other Material Contract Exhibits related to Management or Directors |
| | |
*10.8(a) | | Survivor Benefits Plan, as amended and restated July 18, 2006, incorporated herein by reference to Exhibit 10.8 to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. |
| | |
*10.8(b) | | Description of other compensation and benefit arrangements for the Corporation’s non-employee directors, incorporated herein by reference to Exhibit 10.7(c) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006. |
61
| | |
*10.8(c) | | Long-Term Disability Program, incorporated herein by reference to Exhibit 10(v) to the Corporation’s 2003 Annual Report on Form 10-K. |
| | |
*10.8(d1) | | 2004 Form of Indemnity Agreement between the Corporation and its directors and executive officers, incorporated herein by reference to Exhibit 10.13 to the Corporation’s 2004 Annual Report on Form 10-K. |
| | |
*10.8(d2) | | Form of amendment to 2004 form of Indemnity Agreement with directors and executive officers, incorporated herein by reference to Exhibit 10.4 to the Corporation’s Current Report on Form 8-K filed April 28, 2008. |
| | |
*10.8(e) | | Form of Indemnity Agreement with directors and executive officers (April 2008 revision), incorporated herein by reference to Exhibit 10.5 to the Corporation’s Current Report on Form 8-K filed April 28, 2008. |
| | |
*10.8(f)+ | | Description of Certain Benefits Available to Executive Officers. |
| | |
*10.8(g) | | Form of Split Dollar Life Insurance Agreement [Thomas], incorporated herein by reference to Exhibit 10.7(p) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007. |
| | |
*10.8(h) | | Form of Split Dollar Life Insurance Agreement [O’Connor], incorporated herein by reference to Exhibit 10.7(q) to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007. |
| | |
*10.8(i) | | Description of salaries of the 2007 named executive officers, incorporated herein by reference to Exhibit 10.7(r) to the Corporation’s Current Report on Form 8-K filed February 29, 2008. |
| | |
*10.8(j) | | 2008 annualized salary rate of D. Bryan Jordan, changed effective September 1, 2008, incorporated herein by reference to Exhibit 10.7(x) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. |
| | |
*10.8(k) | | 2008 annualized salary rate of Thomas C. Adams, Jr., incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed August 21, 2008. |
| | |
*10.8(l)+ | | Annualized salary rates in effect at January 1, 2009 of Charles T. Tuggle, Jr. and Frank J. Gusmus Jr. |
| | |
*10.8(m) | | Description of special bonus paid to Elbert L. Thomas, Jr., incorporated herein by reference to Exhibit 10.7(w) to the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008. |
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*10.8(n) | | Form of letter agreement with executive officers related to compensation, in conformity with the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed November 17, 2008. |
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*10.8(o) | | Form of waiver required of initial senior executive officers in connection with sale of preferred stock under the Troubled Asset Relief Program, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed November 17, 2008. |
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Other Material Contract Exhibits |
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10.9 | | Form of Settlement Agreement related to McLean litigation, incorporated by reference to Exhibit 10.10 to the registrant’s Current Report on Form 8-K dated February 15, 2007. |
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10.10 | | Conformed copy of Asset Purchase Agreement dated June 3, 2008 related to the sale of certain mortgage business operations and assets, incorporated herein by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008. |
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10.11 | | Conformed copy of Mortgage Loan Subservicing Agreement dated June 3, 2008 related to the subservicing of certain mortgage loans, incorporated herein by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008. |
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10.12 | | Conformed copy of Servicing Rights Purchase and Sale Agreement dated June 3, 2008 related to the sale of certain mortgage servicing rights assets, incorporated herein by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K/A filed June 4, 2008. |
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10.13 | | Letter agreement dated November 14, 2008 with the U.S. Department of the Treasury, including Securities Purchase Agreement – Standard Terms, incorporated herein by reference to Exhibit 10.3 to the Corporation’s Current Report on Form 8-K filed November 17, 2008. |
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13+ | | Pages 2 through 150 of the First Horizon National Corporation 2008 Annual Report to Shareholders, a copy of which is furnished for the information of the Securities and Exchange Commission. Portions of the Annual Report not incorporated herein by reference are deemed not to be “filed” with the Commission. |
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14+ | | Code of Ethics for Senior Financial Officers. |
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21+ | | Subsidiaries of the Corporation. |
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23+ | | Accountant’s Consents. |
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24+ | | Power of Attorney. |
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31(a)+ | | Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002) |
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31(b)+ | | Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of Sarbanes-Oxley Act of 2002) |
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32(a)+ | | 18 USC 1350 Certifications of CEO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002) |
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32(b)+ | | 18 USC 1350 Certifications of CFO (pursuant to Section 906 of Sarbanes-Oxley Act of 2002) |
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